PETRONAS DAGANGAN BHD

The Star Malaysia - StarBiz - - Analyst Reports -

By CIMB Re­search Hold (no change) Tar­get price: RM24.67

THE gov­ern­ment’s Bud­get 2019 un­veiled sev­eral ini­tia­tives to be im­ple­mented, which CIMB Re­search be­lieves will hurt the fu­ture tra­jec­tory of Petronas Dagangan’s (PetDag) re­tail and com­mer­cial vol­umes.

The first was a ra­tio­nal­i­sa­tion of the RON95 mo­tor gaso­line (mo­gas) sub­sidy pro­gramme that will take ef­fect in the sec­ond quar­ter of 2019 (2Q19), while the sec­ond was the im­po­si­tion of an avi­a­tion de­par­ture levy for in­ter­na­tional trav­ellers.

From 2Q19 on­wards, the gov­ern­ment will limit the re­tail sub­si­dies for RON95 to a nar­rower group of peo­ple and with clear vol­ume lim­its.

The cur­rent sub­sidy pro­gramme is in­dis­crim­i­nate in terms of the type of peo­ple who can ben­e­fit from it and un­lim­ited in terms of how much sub­sidy the gov­ern­ment is will­ing to bear. As the sub­sidy borne by the gov­ern­ment is ex­pected to fall from 2Q19 on­wards, the weighted av­er­age cost of fuel borne by con­sumers is ex­pected to rise, po­ten­tially hurt­ing sales vol­umes of RON95.

“For now, the gov­ern­ment will keep the price of re­tail diesel fixed but, if our the­sis on the new In­ter­na­tional Mar­itime Or­ga­ni­za­tion’ s global sul­phur cap is cor­rect, spot diesel prices and crude oil prices will rise and the gov­ern­ment’s diesel sub­sidy will bal­loon in 2020.

“If this sce­nario ma­te­ri­alises, we ex­pect the diesel sub­sidy to be ra­tio­nalised as well, lead­ing to po­ten­tially lower re­tail sales vol­umes of diesel,” said CIMB Re­search. The gov­ern­ment said in Bud­get 2019 that it will in­tro­duce a new avi­a­tion levy for in­ter­na­tional de­par­tures in mid-2019, which is on top of cur­rent air­port Pas­sen­ger Ser­vice Charges – likely to be in­creased in mid-2019.

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