KUCHING: The government’s move to revise upwards the margin for petrol station operators regarding RON95 and RON97 products and diesel products has been viewed as beneficial to petrol station dealers.
In a statement by Finance Minister Lim Guan Eng last Friday, the government has agreed that the margin for petrol station operators be revised to 15 sen per litre for RON95 and RON97 petrol products and 10 sen per litre for diesel products.
“This is an additional 2.81 sen per litre for petrol and three sen per litre for diesel, compared to the current rate of 12.19 sen per litre for petrol and seven sen per litre for diesel,” the statement also read.
With this being the first revision since 2008, Affin Hwang Investment Bank Bhd (AffinHwang Capital) highlighted in a Petronas Dagangan Bhd (Petronas Dagangan) report that this latest development would benefit the petrol dealers by providing a better margin of safety on the weekly fluctuation in product prices, cetirus paribus.
“On Petronas Dagangan’s standpoint, this is largely earnings neutral as company margin remains fixed at five sen per litre and 2.25 sen per litre for MOGAS and diesel, on the assumption the alpha remains fixed,” the research firm said.
AffinHwang Capital thus made no changes to its earnings forecast on Petronas Dagangan. The research firm’s core net profit projections remained at RM985.9 million for 2018E, RM1.04 billion for 2019E and RM1.07 billion for 2020E.
Affin Hwang Capital also reiterated its ‘hold’ rating on the stock and left its discounted cash flow (DCF)-based target price unchanged at RM28.30 per share, which implied a 27-fold financial year 2019 (FY19) price earnings ratio (PER).
“Upside and downside risks to our call include swing in retail and commercial sales volume. Downside risk could also arise from any unforeseen higher-than-expected spending for the current stations infrastructure upgrading.”