Aircraft movement growth to bode well for PetDag

KUALA LUMPUR: The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) believes that its house optimism on aircraft movement growth will bode well for Petronas Dagangan Bhd's (Petronas Dagangan) aviation fuel segment.

According to MIDF Research, total aircraft movements in Malaysia have been registering positive year-over-year growth for the past two years.

The research arm noted that for the first half of financial year 2017 (1HFY17), total aircraft movements in Malaysia registered nine per cent year on year (y-o-y) growth, with international and domestic aircraft movements registering growth of 9.2 per cent y-o-y and 8.7 per cent y-o-y respectively.

MIDF Research's house is of the opinion that the growth momentum will sustain throughout the year and into FY18, further supported by strong passenger traffic movements locally.

MIDF Research highlighted that currently, Petronas Dagangan supplies Jet-A1 fuel to more than fifteen international and local aircraft carriers in both KLIA1 and KLIA2 with an estimated market share of over 70 per cent (the research arm's internal estimates).

“Therefore, we believe that our house optimism on aircraft movement growth will bode well for Petronas Dagangan's aviation fuel segment,” it said.

From MIDF Research's internal estimates, the supply of aviation fuel generally constitutes approximately 17 to 18 per cent of total sales volume, inclusive of MOGAS, Diesel, liquefied petroleum gas (LPG), lubricants and other petroleum-based products.

The research arm pointed out that an increase in demand will contribute positively to Petronas Dagangan earnings and the company is always on a continuous drive to gain new customers and to increase its market share.

As such, MIDF Research maintained its ‘buy' recommendation on Petronas Dagangan with an unchanged target price of RM28.00 per share.

The research arm's target price was premised on price earnings ratio 2018 (PER18) of 28-fold pegged to EPS18 of 100.1sen.

“The target PER is based on Petronas Dagangan's average four-quarter rolling PER over the past five years,” it said.

Therefore, we believe that our house optimism on aircraft movement growth will bode well for Petronas Dagangan's aviation fuel segment. MIDF Research

Petronas Dagangan supplies Jet-A1 fuel to more than fifteen international and local aircraft carriers in both KLIA1 and KLIA2 with an estimated market share of over 70 per cent (the research arm's internal estimates).