Higher petrol dealer commission neutral on PetDag’s earnings

Impact is earnings neutral as PetDag’s margin remains fixed at 5 sen and 2.25 sen per litre for mogas and diesel respectively


The rise in petrol dealer commission rates from sales of RON95 and diesel fuels is expected to have no impact on Petronas Dagangan Bhd’s (PetDag) earnings margin.

Affin Hwang Investment Bank Bhd noted that the impact is largely earnings neutral as PetDag’s margin remains fixed at five sen per litre and 2.25 sen per litre for motor gasoline (mogas) and diesel respectively.

Last Friday, the government announced petrol dealer commissions for RON95 and diesel will be raised by 2.81 sen and three sen per litre respectively.

The decision came after the government decided to resume floating prices of fuel at the pump with prices to be fixed on a weekly basis, based on the automatic price mechanism (APM).

The price of fuel at the pump will be announced each Friday and will take effect on Saturday, with the price of RON95 capped to the topside at RM2.20 per litre.

“This is the first revision since 2008, which would benefit the petrol dealers by providing a better margin of safety on the weekly fluctuation in product prices.

“From PetDag’s standpoint, this is largely earnings neutral,” Affin Hwang said in a research note yesterday.

The research arm of the investment bank reiterated its ‘Hold’ call with an unchanged target price at RM28.30 on the downstream arm of national oil company Petroliam Nasional Bhd.

“Upside and downside risks to our call include a swing in retail and commercial sales volume.

“Downside risk could arise from any unforeseen higher than expected spending for the current stations infrastructure upgrading,” it added.

PetDag trades at 25 times its estimated earnings per share for the coming year and the company’s dividend yield is 3.7% on a trailing 12-month basis, and 3.2% based on dividend forecasts for the next 12 months done by Bloomberg.

The analyst consensus one-year price target for the company is RM27.72, for a potential return of 7.9%.

Collectively, analysts have raised the target by 1.4% in the past three months.

At the close yesterday, PetDag fell 20 sen, or 0.8%, to RM25.70 after testing a low of RM24.60 in intraday trade.