Worst earnings in two years not a damper for PetDeg

KUALA LUMPUR: Analysts hold their outlook for Petronas Dagangan Bhd (Petronas Dagangan) in spite of the firm reporting its lowest quarterly earnings in two years, owing to higher product costs coupled with sliding sales volumes.

Kenanga Investment Bank Bhd (Kenanga Research) saw that core profit of RM210.9 million for the first quarter of 2018 (1Q18) plunged 24 per cent sequentially from RM279.3 million in 4Q17 despite revenue inching up by one per cent to RM7.07 billion from RM6.99 billion previously.

This was principally owing to higher product costs, especially for its retail segment, which saw its operating margin deteriorating to 4.5 per cent from 6.3 previously while Commercial segment’s margin fell slightly to 3.5 per cent from 3.6,” it said in a report.

“Overall, the group’s operating margin fell to 4.1 per cent from 5.3 previously. On the other hand, the rise in revenue was led by higher average selling prices which firmed up three per cent although sales volume was lowered by four per cent.”

On a yearly basis, Petronas Dagangan’s 1Q18 core profit contracted 17 per cent from RM252.8 million although revenue rose six per cent from RM6.69 billion. This was led by the abovementioned decline in Retail earnings on higher product costs, which resulted in segment operating margin falling from 5.6 per cent to 4.5.

“However, this was mitigated by higher Mogas margin on lower product cost,” Kenanga Research added.

“In addition, operating expenditure was higher in 1Q18 due to higher salaries, wages and benefit expense. On the other hand, Commercial reported lower earnings on higher opex.”

Meanwhile, on the new Pakatan Harapan government decided to maintain fuel prices since it won the GE14 on May 9 as opposed to the previous weekly review every Wednesday. The new government said it will subsidise whenever costs are higher than selling price.

“This means it will revert to the old system which was implemented prior to December 2014,” it addd. “Nonetheless, the new measure has neutral impact to PETDAG’s earnings but may affect it cash-flow given the timing to claim back the refund.

“With its current cash in hand of RM2.69 billion, Petronas DaganganG should have enough financial strength to facilitate the change.”