Analysts more bullish on Petronas Dagangan’s FY15
KUALA LUMPUR: Analysts are more bullish on Petronas Dagangan Bhd’s (Petronas Dagangan) financial year 2015 forecast (FY15F) on the back of its key strategic initiatives.
According to AllianceDBS Research Sdn Bhd (AllianceDBS Research), as part of its key strategic initiatives, Petronas Dagangan is actively managing its costs, targeting to keep its operating expenditure (opex) at RM320 million to RM350 million per quarter.
“This could reduce costs by nine per cent. Inventory levels will be optimised to reduce PDB’s exposure to the volatility in oil prices.
“Also, Petronas Dagangan is looking to boost revenue intensity at each station. It plans to upgrade existing stations which have seen strong population growth in their catchment areas, by adding petrol pumps and ‘Kedai Mesra’ stores,” it said.
The research team also pointed out that the worst might be over for Petronas Dagangan’s retail segment.
It explained, Petronas Dagangan’sunitgrossprofit(which is gross profit per litre) at the retail segment has a positive correlation with oil price movements, due to the Means of Platts Singapore (MOPS) lag gains/losses.
“As oil prices contine to trend up in April to May this year, this could translate into higher earnings in the second quarter of 2015 (2Q15),” AllianceDBS Research said.
This could reduce costs by nine per cent. Inventory levels will be optimised to reduce PDB’s exposure to the volatility in oil prices.
AllianceDBS Research
A lower opex could also drive Petronas Dagangan’s bottomline growth, the research team pointed out.
“Following the dismal showing in 4Q14, management has launched several cost initiatives and targets to cut FY15F’s opex by 15 per cent. This could be a key earnings driver in FY15F.
“Already, opex has fallen by 19 per cent year-on-year (y-o-y) in 1Q15, but this was partly contributed by several non-recurring factors (which are timing differences, foreign exchange gains, and others),” it explained.
Meanwhile, investors are clamoring for Petronas Dagangan to raise dividend payout, given the lowerworkingcapitalrequirement going forward, AllianceDBS Research noted.
“Petronas Dagangan’s free cash flow is more than sufficient to cover regular dividend payments. There is scope for special dividends, as current cash levels (more than RM1 billionn at end 1Q15) exceed the company’s regular cash holdings of RM300 million to RM400 million,” it said.
The research team also noted that Petronas Dagangan saw its cash pile rise to more than RM1 billion at end-1Q15 with the abolishment of the petrol subsidy scheme.
“We expect the group to be able to sustain dividend payments, even if earnings remain lackluster. In addition, Petronas Dagangan may declare more special dividends to return the surplus cash to shareholders,” it opined.
Some investors also wish to see Petronas Dagangan transition to an asset-light strategy, monetise their fixed assets, and return the cash to shareholders, the research team noted.
“We concur, and think there is substantial value in the group’s petrol station assets that could be realised. Management is not keen on this course of action, but we think this could be a significant re-rating catalyst if they do,” it commented.
All in, AllianceDBS Research retained a ‘hold’ recommendation on the stock and explained reasons for holding the stock include possible special dividends of 60 sen per share, which could raise FY15F dividend yields to above five per cent, and potential earnings upside from MOPS lag gains, driven by higher oil prices.