Petronas Dagangan sees strong earnings
KUALA LUMPUR: Petronas Dagangan Bhd (Petronas Dagangan) recorded its strongest quarterly earnings for the fourth quarter of 2016 (4Q16), beating analysts’ expectations.
Analysts opined that the company’s strongest quarterly earnings was boosted by improved profit margin from sales of motor vehicle gasoline product known as mogas for passenger vehicles and motorcycles and inventory gains.
In a filing on Bursa Malaysia, Petronas Dagangan said its 4Q16 earnings soared by 184 per cent year-on-year (y-o-y) to RM261.49 million from RM92.11 million recorded in 4Q15.
However, the company said 4Q16 revenue remained flat at RM6 billion as compared with RM6.02 billion generated in 4Q15.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) believed that the surge in Petronas Dagangan retail segment’s operating profit was partly driven by the mark-to-market (MTM) inventory gains during the quarter ended December 2016 as crude oil prices had increased by approximately 14 per cent from 3Q16 to 4Q16.
The research firm in a report yesterday said a review of the company’s balance sheet showed that its inventory rose by about RM200 million from 3Q16 to 4Q16.
The research firm opined that the increase in the company’s inventory in 4Q16 was due to MTM gains given that the group normally holds around five days of stocks.
With an assumption that Petronas Dagangan’s 4Q earnings was boosted by MTM gains of around RM150 million, stripping the gain and adjusting for its effective tax rate would result in earnings of about RM155 million in 4Q16.
As such, the research firm noted the higher earnings in 4Q16 would bring Petronas Dagangan’s financial year 2016 (FY16) adjusted earnings to about RM800 million, within its and consensus expectations.
Petronas Dagangan in a filing to the stock exchange added for FY16 ended December 2016, net profit rose by 20 per cent y-o-y to RM944.61 million from RM789.98 million.
AllianceDBS Research observed that the company’s FY16 core earnings of RM911 million was above its and consensus earnings of about RM850 million.
Additionally, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) in another report said Petronas Dagangan’s 4Q16 net profit rose by five per cent quarter-on-quarter (q-o-q) to RM261.5 million from RM248.8 million registered in 3Q16 on the back of eight per cent hike in revenue due to better product margin, especially mogas.
The research firm noted the company recorded higher earnings in 4Q16 despite sales volume dipping another one per cent from the weak 3Q16 with lower travel volume on the road as air flight was the preferred choice for yearend holiday.
Nevertheless, Kenanga Research gathered that the average selling price (ASP) of the company’s products was higher by nine per cent which was not unexpected given the recovery of crude oil prices.
Having said that, the research firm also gathered that the company’s operating expenditure (opex) was higher due to higher professional services, repair and maintenance, manpower expenses as well as the seasonal higher depreciation charges in the fourth quarter which dragged earnings growth.
Meanwhile, the research division of TA Securities Holdings Bhd (TA Research) in another report said Petronas Dagangan’s earnings for FY16 was stronger due to volume growth of two per cent, lower opex at the retail segment, lower effective tax rate, and higher profit margins from the aviation segment.
The research firm noted those factors more than offset the higher costs at Petronas Dagangan’s commercial segment and lower ASPs for both the retail and commercial segments.
On the bright side, the research firm opined that the ASP and volume trends in 4Q16 signalled improved traction in price recovery and demand.
Nonetheless, TA Research believed Petronas Dagangan’s earnings growth would likely remain subdued in the near-to-medium term.
It reasoned that due to the company’s plan to hold back expansions of new petrol station outlets, muted volumes in-line with sluggish economic activities, particularly from the oil and gas (O&G) upstream activities.
Despite that, Kenanga Research opined that with mogas prices on the rise in the past two months as the recovery of crude oil price coupled with weaker ringgit exchange rate, Petronas Dagangan’s sales is likely to be higher in the first quarter of 2017 (1Q17).
Nevertheless, it observed that the price spike was not volatile, which was unlikely to lead to earnings shock in the coming quarters.
Likewise, the research firm believed as the first quarter of the year is a seasonally high traffic volume for Chinese New Year (CNY) holiday, business volume should be higher sequentially, thus, leading to better earnings in 1Q17.
Kenanga Research believed Petronas Dagangan’s earnings are expected to be more stable than previous years as crude oil prices are unlikely to experience sharp declines as in the previous two years.
Overall, analysts were positive on the company’s financial performance for 4Q16 and FY16.