PetDag 2Q earnings below forecast

The company’s 3Q is likely to be its weakest quarter due to the lockdown measures imposed


PETRONAS Dagangan Bhd (PetDag)’s core profit after tax and minority interests (PATAMI) of RM81.5 million in the second quarter of 2021 (2Q21) was below analysts’ expectations due to the rise in Covid-19 cases which impeded travel.

Hong Leong Investment Bank Bhd (HLIB Research) stated PetDag’s first half of 2021 (1H21) core PATAMI of RM266 million was also below HLIB expectations and consensus which accounted for only 40% of forecasts.

“PetDag’s 1H21 core PATAMI was arrived at after adjusting for RM7.5 million EI’s mainly comprising of net gain on disposal of property, plant and equipment (PPE) for RM2.1 million, write-back of impairment loss on receivables for RM2.7 million and reversal of write down on inventories for RM1.6 million,” HLIB Research analyst Low Jin Hu noted that in a report yesterday.

PetDag declared a dividend of 10 sen per share. Its core profit declined by 55.8% due to lower sales volume, higher product costs and less favourable Mean of Platts Singapore (MOPS) price trend.

“The group’s year-on-year coming off a low base due to Movement Control Order (MCO 1.0) with significantly better core profit of RM81.5 million attributable to more favourable MOPS prices trend as well as higher sales volume (13%),” added Low.

PetDag’s year-to-date also came off a low base, while its core profit improved on higher average selling prices of 15% despite a 6% decline in sales volume.

Low expects PetDag’s sales in 3Q21 will probably get worse before it gets better.

“We expect its sales volumes to drop significantly in 3Q21 as a result of Phase One lockdown measures which are still in place, especially with regards to travel. However, we believe the ramp-up in vaccination rates nationwide should be able to bring us back to some form of normalcy in 4Q21,” Low wrote.

The analyst added the 3Q is expected to be its weakest quarter due to the lockdown measures imposed.

HLIB Research cut PetDag’s earnings by 35.2%, 23% and 22.8% respectively for the financial year of 2021 (FY21) to FY23F on slower than expected recovery from the Covid-19 pandemic and concerns over the impact of the Delta Variant.

“While a recovery outlook is on the cards, expected sequential results weakness could impede near term share price performance. We believe the stock is fairly valued at this juncture,” noted Low.

HLIB Research maintains its ‘Hold’ rating on the downstream petrol retailer with an unchanged target price of RM18.55 as it rolls forward its valuations to FY22 based on a slightly lower price-earnings of 28 times.