This article first appeared in The Edge Financial Daily, on April 21, 2016.

KUALA LUMPUR: Petronas Dagangan Bhd plans to open up to 15 service stations in 2016 with its allocated capital expenditure (capex) of RM400 million for the year, despite the challenging market conditions as crude oil prices remain dampened.

“We will be adding stations, but not as many as before,” managing director and chief executive officer Mohd Ibrahimnuddin Mohd Yunus told reporters after the company’s annual general meeting.

“We are looking at 10 to 15 new stations, depending on the demand of the area and the market. We have already opened a few in the first quarter of the year,” he said. The company opened about 50 stations over the past five to six years.

“We are looking to spend RM400 million in capex for the year, which will not only be spent on new stations, but also for the refurbishment of stations and depots in accordance with maintenance and HSE (health, safety and environmental) requirements,” he added.

Petronas Dagangan chairman Md Arif Mahmood said the company will continue its efforts in managing inventory and minimising its costs to improve margins for its retail business.

“Last year, we cut down our inventory dates from nine days to about five days, which has freed up our working capital and made it more efficient. At the same time, we have done more automation, to reduce costs and increase efficiency,” he said.

For the aviation fuel segment under its commercial business, Mohd Ibrahimnuddin said Petronas Dagangan intends to work with more airlines, after securing a few new customers.

“Aviation fuel is one of the focus areas in the commercial business. We just got new customers like Turkish Airlines and Lufthansa and we are always looking to add to our customer base.

“We are in discussions with all airlines in KLIA, and we are aiming to secure a few within the year,” he said, without revealing details.

Mohd Ibrahimnuddin added that the company is also expecting a 3% increase in sales volume for its bitumen segment, in line with increasing demand from the construction segment. Its bitumen sales contribute to 15% of its margins for the commercial business, which in turn contributes up to 35% of total margins.

On the legal issues between Petronas Dagangan’s 65%-owned Kuala Lumpur Aviation Fuelling System Sdn Bhd (KAFS) and Malaysia Airports Holdings Bhd unit Malaysia Airports (Properties) Sdn Bhd (MA [Properties]), Mohd Ibrahimnuddin said he’s confident that both parties would be able to settle the issue.

To recap, KAFS is seeking an estimated RM456 million from MA (Properties) for alleged losses and damages related to changes in the concession period under the airport facilities agreement.

“The case concerns the shortening of the concession period by 14 years. We will have to wait for the arbitration process and the timeline of the arbitration process,” said Mohd Ibrahimnuddin.