PETRONAS DAGANGAN BHD, the domestic marketing arm of Petroliam Nasional Bhd (Petronas), has proved its resilience despite the slump in oil prices.
The sharp fall in prices taught the company a valuable lesson, Petronas Dagangan CEO and managing director Mohd Ibrahimnuddin Mohd Yunus says during The Edge Billion Ringgit Club “Meet the CEO” session last Friday, which drew a full house.
“[In response,] we brought down our operating cost by 30%, especially transport and entertainment expenses,” he tells students at KDU Glenmarie Campus.
Ibrahimnuddin notes that oil prices tumbled 45% to a five-year low of US$50 a barrel in January this year, which shocked not only Petronas Dagangan (fundamental: 1.7; valuation: 1.1) but also the whole world.
“This had an adverse effect on our margins,” he says, adding that most of Petronas Dagangan’s margins come from the retailing business. He acknowledges that it was a difficult time.
“When that happened, we lost a lot of money. Normally, we register profits of between RM150 million and RM200 million every quarter. For the fourth quarter of last year, we were really lucky to just make money (some profits).”
In the fourth quarter ended Dec 31 last year, Petronas Dagangan’s net profit plunged to RM445,000, a decline of 99.7% year on year. Revenue was 11.13% lower at RM7.45 billion. Earnings per share fell to 0.04 sen from 15.20 sen the previous year.
The deterioration in its 4QFY2014 results came on the back of a decrease in sales volume and average selling price, the company said in an announcement dated Feb 12 this year.
However, in the first quarter ended March 31 this year, Petronas Dagangan staged a firm rebound, registering a net profit of RM205.77 million against RM155.08 million in the previous corresponding period. Revenue, meanwhile, dipped 26.43% y-o-y to RM6.1 billion.
The resurgence of profit was mainly due to lower operating expenditure and higher other income by RM19.9 million, according to an announcement dated May 11.
In the event of another oil shock in the future, Ibrahimnuddin, 51, says Petronas Dagangan will be able to face it as “we have put in a lot of strategies to address these issues”.
Before embarking on his journey as Petronas Dagangan chief in February last year, Ibrahimnuddin had served in Petronas for 26 years. He also did a stint in Bank Negara Malaysia after graduating with a Bachelor of Arts in Economics from York University in Canada.
Responding to a question on how he overcame the challenges during his tenure with Petronas, Ibrahimnuddin says, “In my journey to become a CEO, I failed many times but I did not give up.”
His advice to the students is, “You will fail and there’s no rosy path to success, but don’t give up. There’s always room for improvement to make everyone better.”
He reminisces about the time when Petronas started off in a small office in the 1980s. “We have progressed so much … After the oil crisis in the 1970s, we had to become a domestic player to ensure ample supply to the market.”
At the moment, Petronas’ operations span over 50 countries in every continent. “We are ranked 69 in terms of revenue in the Fortune Global 500 ranking. We are number two in terms of production in the world.”
Petronas produces about two million barrels of oil per day, he says. “We are in surplus, [and therefore we] export our oil.”
Ibrahimnuddin says Petronas’ RM60 billion Refinery and Petrochemical Integrated Development project is in progress. “Johor is going to be where the action is.”
Petronas Dagangan has four core businesses, namely retail (products sold in petrol stations), commercial (supply of diesel, jet fuel and so on), liquefied petroleum gas and lubricants.
It owns more than 1,000 petrol stations nationwide. It also has the biggest network in Malaysia with 750 Petronas Kedai Mesra, which is its one-stop convenience centre.
On top of that, Petronas provides retail offerings such as Starbucks, Dunkin’ Donuts and KFC in some of its petrol stations.
“We feel that it’s a win-win partnership between all these outlets and us at our retail stations.
“When our customers come and fill up petrol, they can enjoy Starbucks and Dunkin’ Donuts or any other quick-service restaurants at the same time. Meanwhile, there’s a pull factor — the retail offerings will pull them in to have coffee daily and they can fill up petrol at our place (stations).”
What is more, its one-stop convenience centres also provide post office, e-payment and ticketing services, among others. “It’s a convenient stop that we are aiming for and I think the consumers will come because of this experience.”
Petronas Dagangan closed 38.21% higher at RM19.90 last Friday, with a market capitalisation of RM19.77 billion, from a low of RM14.38 on Dec 1 last year.
Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.
This article first appeared in The Edge Malaysia Weekly, on June 1 - 7, 2015.
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