Weekly price ceiling to benefit PetDag

KUALA LUMPUR: The new weekly price ceiling for fuel will likely benefit Petronas Dagangan Bhd (PetDag) as the industry moves towards more deregulation.

Now that fuel prices will no longer be fixed anywhere above the weekly ceiling price set by the Government, UOB Kay Hian believes this would set the stage for a price war among petrol dealers in which PetDag, Malaysia’s largest petroleum retail chain, will likely be the predictable winner. PetDag has around 1,000 fuel stations in Peninsular Malaysia and a 30% market share of the industry.

“We feel this impact is neutral or potentially positive for PetDag. The policy may allow PetDag some negotiating power to do business with only the most efficient dealers.

“We believe it is able to protect its margins from the current fixed component of 5 sen per litre,” UOB Kay Hian said.

It also believes the weekly change could benefit the company’s cashflow by way of managing its inventory costs against actual selling prices if fuel prices continue to fluctuate in the coming years.

UOB Kay Hian has set a dividend payout assumption for PetDag shareholders at 75% for the end of financial year 2017 (FY17) and maintained a “buy” call for its shares.

PetDag ended its FY16 with larger profits than in 2015, thanks to a strong fourth quarter which saw earnings tripled year-on-year to RM261.49mil.

Last week, Domestic Trade, Cooperatives and Consumerism Minister Datuk Hamzah Zainuddin announced that the Government would set a new ceiling price for fuel every week, starting April 17. UOB Kay Hian, however, said the announcement could also be seen as a “pre-election move” that effectively shifted the Government’s burden of potentially imposing more fuel subsidies to the industry players by way of competition.

This could, however, prove detrimental to the smaller dealers and stations in rural areas, which may have to compete with larger retailers that are in better positions to set lower prices, it said.