KUALA LUMPUR (Nov 25): CIMB Research has upgraded Petronas Dagangan Bhd (PetDag) to Add (from Hold) at RM17.44 with an unchanged target price of RM20.80 and said contrary to what the market thinks, the government’s decision to put RON95 petrol and diesel on a managed float system was positive for petroleum retailers, including PetDag.

In a note Nov 24, CIMB Research analyst Norziana Mod Inon said the managed float system would lead to the removal of subsidy receivables, thus potentially improving PetDag’s cash flow.

She also said the automatic pricing mechanism (APM) remains in place, ensuring PetDag a fixed company margin of 5 sen per litre.

“In view of the sharp share price fall since the managed float system was announced on 21 Nov, we upgrade our call from Hold to a trading-oriented, non-consensus Add while maintaining our forecasts and target price.

“We continue to value the stock at 21.2x CY16 P/E, still at a 30% premium over our target market P/E of 16.3x,” she said.

At 9.48am, PetDag fell 1.72% or 30 sen to RM17.14 with 69,200 shares done.