KUCHING: The announcement that pump prices are to be set on a weekly basis have been viewed by analysts as a positive development for Petronas Dagangan Bhd (Petronas Dagangan).
It was announced by the Minister of Domestic Trade, Cooperatives and Consumerism (KPDNKK) Datuk Seri Hamzah Zainudin that weekly petrol and diesel prices fixed by the government will be announced every Wednesday and the prices will come into effect after midnight (Thursday).
The new mechanism will be set on March 29 and take effect on March 30. The Automatic Pricing Mechanism (APM) however, remains unchanged.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), the weekly fixing of pump prices is positive for Petronas Dagangan as it reduces the exposure time of petrol dealers to MOPS prices from one month previously, to seven days.
“This would mean that the likelihood of Petronas Dagangan experiencing lag loss due to steep declines in crude oil/MOPS prices is reduced,” it said.
The research arm went on to note that the weekly price fixing will further strengthen Petronas Dagangan’s continuous initiative in managing their inventory turnaround days of approximately four to five days. On economies of scale, MIDF Research pointed out that Petronas Dagangan currently has a petrol station network of over 1,000 stations.
The research arm believed that in a competitive price environment, where dealers are able to offer discounts (with the permission of KPDNKK), Petronas Dagangan will have the upper hand in offering more competitive pump prices with additional perks at the group’s Kedai Mesra stores as it has the most petrol stations in Malaysia and its ability to fund heavy upgrade capex at its dealerships.
Overall, no change was made to earnings estimates at this juncture but MIDF Research upgraded Petronas Dagangan to ‘buy’ (from ‘neutral’ previously), with a target price of RM26.91 per share.
MIDF Research’s valuation was premised on price earnings ratio 2017 (PER17) of 28-fold pegged to earnings per share 2017 (EPS17) of 96.1sen.
“The target PER is based on Petronas Dagangan’s average four-quarter rolling PER over the past five years,” it said.