Friday, September 24

Petronas Dagangan FY13 falls short of expectations

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KUCHING: Petronas Dagangan Bhd’s (Petronas Dagangan) financial year 2013 (FY13) earnings has fallen short of analyst expectations dragged by weaker operating margins, while its outlook remains challenging due to volatility in international oil price.

According to the research team of HwangDBS Vickers Research Sdn Bhd (HwangDBS Vickers Research), the company’s FY13 net profit was 81 per cent and 79.4 per cent of its and consensus’ estimates, respectively.

Similarly, for the research arm of TA Securities Holdings Bhd (TA Research), FY13 net profit came in below its and consensus expectations as it made up only 90 per cent and 85 per cent of full year estimates respectively.

As a result of this, TA Research has lowered its earnings forecast by 8.3 per cent  to 8.7 per cent for FY14 to FY15, respectively after lowering its margin assumptions and higher depreciation charges.

On the other hand, HwangDBS Research has maintained its FY14 to FY15 forecast earnings projection pending even though Petronas Dagangan’s dividend declaration of 61.6 sen for FY13 also fell short of the research arm’s full year net dividend per share (DPS) expectations of 75 sen.

Overall, TA Research believed that the outlook for Petronas Dagangan remains challenging due to volatility in international oil price, which affect petroleum product costing.

“Despite higher contribution from the commercial segment, we believe the margin contraction from the retail segment remains a hurdle to the bottom line performance,” it added.

That said, the research arm revised downward its target price to RM19.22 per share from RM21.05 per share previously after the earnings revision and based on unchanged target price earnings ratio (PER) of 20-fold.

Petronas Dagangan’s price has appreciated more than 35 per cent in the last 12 months, riding mainly on the optimistic outlook in the oil and gas industry, it noted.

“Nonetheless, the stock now appears unattractive from a valuation perspective, in our view,” it opined.

As such, TA Research maintained its ‘sell’ recommendation on Petronas Dagangan as it believes the group still lacks meaningful catalyst at this point in time.

As for HwangDBS Vickers Research, it maintained ‘fully valued’ rating on the stock with a target price of RM19.70 per share based on 18-fold FY14F PE pegged at one standard deviation (SD) above its mean.

“Petronas Dagangan is expensive at 28-fold FY14F PE which is two SD above its historical mean. Petronas Dagangan’s current share price implies net dividend yield of 2.1 per cent for FY14F, which is less appealing to yield seeking investors.

“Although Petronas Dagangan has a resilient business model, current valuations are unjustified,” it concluded.