Petronas Dagangan Bhd
(Aug 16, RM23.50)
Maintain hold with an unchanged target price of RM23.28. Petronas Dagangan Bhd’s second quarter of financial year 2016 (2QFY16) core net profit declined slightly by 0.7% to RM271.7 million due to lower selling prices of motor gasoline and diesel in the retail segment, higher operating expenditure in retail due to its marketing activities and weaker diesel gross margin in the commercial segment in line with lower industry demand.

On a quarter-on-quarter basis, its core net profit surged by 23.8% in 2QFY16, which is in line with sequential volume improvement in both retail and commercial segments and an increase in average selling prices by 5% due to oil prices movements.

We have excluded a one-off impairment incurred in the quarter (RM89.9 million) on subsidy receivables.

In six months of financial year 2016 (6MFY16), core net profit nudged upwards by 2.5% to RM491.1 million despite a plunge in revenue caused by lower average selling prices for its products.

This was underpinned by lower finance cost due to lower debt level and marginally higher sales volume year-on-year in the period under review. This is being partially offset by higher depreciation and increase in advertising and promotion activities for its retail segment.

Retail will further expand its availability of Euro 5 diesel at selected stations in the second half of 2016, which could help to improve its retail diesel volume slightly.

Diesel continues to be a drag for its commercial segment due to weak industry demand going forward.

The group will continue to improve its margins in targeted products and market segments, leveraging on public- and private-sector investments on infrastructure and construction projects. — Hong Leong Investment Bank Research, Aug 16