PetDag’s efforts to upgrade stations may provide earnings uplift
KUCHING: Petronas Dagangan Bhd’s (PetDag) efforts to upgrade more of its stations will likely provide some earnings uplift for the group, analysts say.
In a report, the research arm of TA Securities Holdings Bhd (TA Securities) said, “PetDag’s continuing efforts to upgrade more stations to supply Euro-5 diesel may provide an uplift to weak volumes.
“Currently, merely six stations in Klang Valley are equipped to supply Euro-5.”
Nevertheless, it pointed out that the group’s expansion progress has been slowing down.
“The group guided for slower expansion of merely 10 to 15 retail outlets in 2016. To recap, back in May 2016, management targeted to open 20 to 30 new outlets this year.
“Whereas in prior years, the group expanded to the tune of 30 to 40 outlets per annum.
“On top of that, as per usual practice, PetDag has closed-down stations that fail to generate sufficient volume, or outlets with expired leases.
“This strategy to cap expansion is on the back of sluggish industry volumes, and to limit cannibalisation of sales. Currently, the group’s network is in excess of 1,050 stations,” it explained.
In a separate report, MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) pegged a ‘neutral’ call on the stock. It noted that PetDag’s strategy is to organically grow the company via a steady increase in products sold.
It also noted that the group is trying to boost the throughput of each station.
Meanwhile, on PetDag’s regional portfolio, TA Securities noted that in the second half of 2016 (2Q16), PetDag completed the divestment of one of its Vietnam subsidiaries, Petronas (Vietnam) Co. Ltd (PVC) to Totalgaz Vietnam Co Ltd which resulted in a gain of RM35.6 million.
“Whereas disposal of PetDag’s other Vietnam subsdiary, Thang Long LPG Co Ltd is targeted for completion by end-2016.
“Both subsidiaries are involved in local bottling and distribution of LPG. This sale does not come as a surprise, as since 2012, management had flagged its intentions to review regional businesses.
“Furthermore, PVC had reported in the first half of 2016 (1H16) losses of RM4 million,” TA Securities explained.
As for PetDag’s other regional businesses, it noted that the management is monitoring the ability of its operations in Thailand (lubricants) and the Philippines (lubricants and LPG) to generate required returns.
“Both subsidiaries are currently profitable, particularly Thailand, which is producing ‘good’ returns. In fact, both have delivered improving results over the years.
“Nevertheless, the contribution from PetDag’s regional portfolio is marginal, at less than three per cent of topline currently,” it added.
Overall, the research team maintained a ‘sell’ call on the stock. It said, “PetDag is essentially a volume play, sluggish network expansion and subdued demand are stumbling blocks. Furthermore, a lazy balance sheet provides limited dividend upside.”