Petronas Dagangan not likely to face fuel market deregulation anytime soon

KUALA LUMPUR: Petronas Dagangan Bhd’s (Petronas Dagangan) is not likely to face fuel market deregulation anytime soon, as gathered from a company update by a research firm.

According to Affin Hwang Investment B an kBhd(Affi nH wang Capital), they took Petronas Dagangan on a non-deal roadshow to meet investors in Tokyo, where the latter’s interests were mainly centered on the possible fuel market deregulation after the change in government, as well as the group’s growth outlook.

“In our view, the deregulation of pump prices will be unlikely and their strong war chest would allow them to further expand into the burgeoning non-fuel segment,” the research firm said.

“Current pump price will unlikely be deregulated over the near-term as this would decrease the households’ disposable income.”

“In addition, management reaffirmed our view on the possibility of a targeted subsidy for the B40 income group in the upcoming Budget 2019.”

AffinHwang Capital noted that while still unsure over the method of implementation, this will help to improve Petronas Dagangan’s cash flow, if materialised.

“Assuming US$80 per barrel (bbl) Brent oil in 2019, and MOPS price at an US$11 premium, the government is effectively subsidising RM0.44 per litre for RON95, totalling RM7.2 billion.

The research firm also noted that the recent tax holiday has resulted in a slight delay in subsidy payment.

Looking ahead, AffinHwang Capital highlighted that for the group’s long-term strategy, Petronas Dagangan intends to increase its non-fuel to 30 per cent of total revenue.

“The group has been focusing on increasing the revenue per square foot of their assets by collaborating with coworking space, Common Ground and introducing more of its own brand items in an effort to drive up their non-fuel margins.

“Petronas Dagangan is currently mainly only deriving royalty income from the dealers from the products sold.”

The research firm believed that for Petronas Dagangan to achieve the 30 per cent target, it may likely need to switch from the current royalty model and/or embark a massive capital expenditure (capex) spending programme for expansion.