KUALA LUMPUR: Petronas Dagangan Bhd (PetDag), which announced disappointing third-quarter results yesterday — its fourth straight declining quarter — is unlikely to stir much excitement with its upcoming fourth quarter ending Dec 31, 2014 (4QFY14) as crude oil prices are expected to continue to slide, said analysts.

They noted that the Mean of Platts Singapore (MOPS) prices — the benchmark fuel oil price for PetDag’s products and the crucial thing to watch out for that decides the company’s earnings and margins outlook — will result in more losses in 4QFY14.

“We expect more MOPS losses in 4Q14 as crude oil prices continue to fall. We also expect higher product costs due to more unfavorable timing differences with MOPS prices... Overall, 4QFY14 results will [likely] be lacklustre,” Tan Kee Hoong, analyst with Alliance DBS Research, told The Edge Financial Daily.

MOPS prices mostly affect PetDag’s retail segment — which contributed 47.8% to group revenue for the nine months of its financial year 2014 (9MFY14) — as this would reduce subsidies received by the group.

“Taking the cue from 3QFY14 results, 4QFY14 [profits] will probably be worse than 3Q, assuming oil prices keep falling until the end of the year,” said Kenanga Research analyst Teh Kian Yeong.

In PetDag’s 3QFY14 results note, management also opined that the remainder of the year is expected to be challenging, as the downward trend of oil prices is expected to continue.

Global oil prices, which remained around US$105 (RM350.70)-US$110 per barrel in the first half of the year, have trended downwards since June. As at the time of writing yesterday, Brent oil dropped to a new four-year low of below US$82 a barrel, as weak economic data from top energy consumer China intensified worries about demand as a global supply glut grows, said a Reuters report.

PetDag’s 3QFY14 net profit plunged 29.1% on-year to RM160.4 million from RM226.2 million; revenue was marginally lower at RM8.23 billion, compared with RM8.41 billion, due to a 4% drop in sales despite a 2% increase in average selling price.

Its cumulative 9MFY14 net profit also fell, sliding 24.2% on-year to RM501.1 million from RM660.4 million, despite marginally better revenue at RM23.96 billion from RM24.89 million, as its retail segment reported lower operating margins of 3.2% versus 5.3% in the previous corresponding period.

In a research note yesterday, CIMB Research said it expects a decent 4QFY14 as year-end travel spurs petrol and jet fuel sales, even as it noted that PetDag’s 9MFY14 net profit had “missed the mark”.

Its analyst Norziana Mohd Inon said PetDag’s retail expansion is set to continue, with management targeting 30 new stations this year. It started FY14 with 1,069 petrol stations and opened 16 stations in the first half of the year.

“By year-end, the bulk of the company’s RM500 million annual capex (excluding RM200 million set aside for operations in the Philippines, Vietnam and Thailand) will be spent on widening its domestic retail network,” Norziana remarked.

But Kenanga’s Teh, while acknowledging that volume will pick up in 4QFY14 and will contribute to top-line growth, cautioned that margins may still be depressed — particularly from the retail segment — again, due to the sliding oil prices.

Alliance DBS’ Tan, however, said PetDag’s sales volume, which has been growing at a single-digit percentage, “does not help much”, citing the MOPS losses of RM70.5 million incurred in 3Q alone, which is already one-third of PetDag’s operating profit of RM230.7 million.

As at yesterday, Bloomberg data showed five research houses had less than optimistic views on PetDag’s stock, with “underperform”, “market perform”, “fully valued”, “sell”, and “hold” calls with target prices ranging from RM14.80 to RM20.80.

PetDag was the top loser on Bursa Malaysia yesterday, shedding 56 sen or 2.73% to close at RM19.94, giving it a market capitalisation of RM19.8 billion. However, research houses are expected to come up with revised earnings forecasts and target prices today after an analyst briefing yesterday.

This article first appeared in The Edge Financial Daily, on November 6, 2014.