KUALA LUMPUR (Nov 26): Shares of Petronas Dagangan Bhd (KL:PETDAG) rose 9.64% on Tuesday after the fuel retailer reported a jump in quarterly profits that exceeded market expectations, making the counter the highest gainer on Bursa.
In the early morning trade, PetDag rose as much as 82 sen, or nearly 5%, to RM18.24. The stock extended its gains to close at RM19.10, its highest in more than two months, giving the company a market capitalisation of close to RM19 billion. Trading volume totalled 1.04 million shares.
Despite the better-than-expected quarterly results, analysts are still cautious on the prospects of PetDag, in which Petroliam Nasional Bhd (Petronas) owns a 63.94% stake, mainly due to the government's fuel subsidy rationalisation.
“We remain cautious about the earnings outlook,” said CIMB Securities. The rationalisation poses a downside risk for Petronas Dagangan as its implementation could suppress volume growth in the retail segment, the research house flagged.
Shares of Petronas Dagangan have declined 17% so far this year amid worries over the impact on its earnings from the government’s diesel subsidy retargeting. The rationalisation of the widely used RON95 petrol is expected to follow suit in mid-2025.
Petronas Dagangan is also the worst-performing counter on the 30-stock KLCI after its sister company Petronas Chemicals Group Bhd (KL:PCHEM), which lost 32% year-to-date.
Analysts mostly cautious
Out of the 11 research houses covering the stock, six have ‘hold’ calls, while there are three ‘buy’ and two ‘sell’ recommendations. The consensus 12-month target price is RM19.46, according to Bloomberg, implying a potential return of just 7% from its last price following latest revisions.
Analysts expect up to a 5.5% dividend yield for FY2024. The company, whose dividend yield currently is 5%, declared its third interim dividend of 24 sen per share in its latest third-quarter results, bringing its year-to-date dividend payout to 62 sen per share.
Apart from retail, the company also sells fuel and other petroleum products to the commercial sector including aviation fuels, and operates a chain of convenience stores at its stations.
For Hong Leong Investment Bank, the decline in share prices over the past few months has turned its risk-reward profile favourable as investors over-estimated the earnings impact of diesel subsidy rationalisation. The research house upgraded its call to ‘buy’ and highlighted its 5% dividend yield.
Further, Petronas Dagangan’s commercial segment is expected to stay buoyant in the coming quarter as decline in jet fuel costs continue to outpace the lower average selling prices, Hong Leong said. Jet fuel sales volume tend to be more robust at year end due to holiday travel season, the research house said.
The impact of RON95 subsidy re-targeting could turn out to be mild in the immediate term, said TA Securities, noting that richer households are unlikely to significantly reduce consumption because of the measure.
“There is always the possibility of expanding the scope of RON95 subsidy retargeting to other income groups beyond the T15 further out, especially in the broader context of driving the transition to cleaner transportation modes such as electric vehicles and public transportation,” it added.
Petronas Dagangan's net profit jumped 81.4% year-on-year to RM335.13 million for the third quarter ended Sept 30, 2024 (3QFY2024) on the back of strong margins supported by favourable price trends, coupled with a decrease in overall product costs due to lower purchase premium.