PetDag growth to come from lubricant ops on aggressive sales

PETALING JAYA: Petronas Dagangan Bhd’s (PetDag) growth will likely come from the lubricant segment, with a projected 5% volume growth, following the adoption of a more aggressive sales strategy, said Affin Hwang Capital.

Currently, PetDag’s market share for the lubricant segment is relatively low at 20%.

To grow market share, PetDag plans to target more “high street” sales points, which are mostly original equipment manufacturer (OEM) car servicing centres and car servicing workshops. This would be a difficult but doable endeavour due to the vast and fragmented car workshop industry.

To date, there are 59 Petronas LubeXperts workshops across the country, which stock and use PetDag’s lubricant products.

Meanwhile, the liquefied petroleum gas market is relatively mature, with PetDag enjoying a 50% market share with 3% projected sales growth.

“Its market share in the commercial segment is around 60% and we expect it to grow by 3% on the back of an increase in airline fleet capacity and route expansion.

“Factoring in the above, we expect a 6.1% and 3.4% earnings per share growth for financial year 2019 (FY19) to FY20,” the research house said.

In an initiation report, Affin Hwang expects PetDag to continue generating a strong free cashflow of RM1bil, adding to its huge cash reserves, as a result of the retail prices of RON95 and diesel fixed at RM2.20 and RM2.18 per litre, respectively.

Apart from that, the research house projected a 1% volume growth for the retail business as it expected sales volume to come under pressure from better car efficiencies, wide use of public transport and growing popularity of e-hailing services.

While the retail market growth is only at low single digit, Affin Hwang said this unit remained a cash-cow business, generating strong operating cashflow under Automatic Pricing Mechanism structure.

“We like PetDag for its high barrier-to-entry business, well established brand and a strong backing from Petroliam Nasional Bhd.

“We initiate coverage with a ‘hold’ as valuation looks fair at 25 times FY19 price-earnings ratio and 3% yield.

“With the recent fuel subsidy implementation, cashflow might pose a near-term risk on any potential delays in subsidy receivables,” said Affin Hwang.

PetDag closed 0.3% lower at RM26.60, traded on a volume of 1.43 million shares yesterday. the