Unexciting earnings for Petronas Dagangan

Unexciting earnings for PDB

Tags: Brokers Call | HwangDBS | PDB | Petronas Dagangan Bhd

Written by Financial Daily
Tuesday, 28 July 2009 12:01

ANALYSTS remained subdued on PETRONAS DAGANGAN BHD [ PETDAG 8.600 0.020 (0.233%) ] (PDB) due to unexciting earnings prospects, with HwangDBS Vickers Research maintaining its fully valued call on the stock against a revised 12-month target price of RM7.20, up from RM6.40 previously.

It said PDB’s overall sales volume would further decline in FY10 (-1.7% to 12.3 billion litres based on its estimate) after dropping by 6.6% to 12.5 billion litres in FY09.

“This is likely to be due to weaker demand from the commercial segment, especially for diesel and jet fuel, which made up 70% of total commercial volume. This could more than offset an expected recovery in mogas/petrol demand, which has already surpassed its pre-June 2008 level, just before the demand plunge due to the steep pump price hike in Jan 2009,” it said.

Although PDB’s fundamentals remained resilient, HwangDBS said earnings prospects were unexciting at a two-year compound annual growth rate (CAGR) of 6.4% with competition intensifying. The company lost 1.6-percentage point market share to 42.5% in FY09, it added.

It said valuations were also unattractive with one-year forward price earnings ratio (PER) at 13.3 times at the upper end of its historical range of two times to 14 times.

“We tweaked our forecasts and bumped up our target price to RM7.20 based on 11 times CY10F earnings per share, to reflect a similar valuation discount vis-à-vis the broad market following the rally since mid-March,” it said.

HwangDBS also believed the introduction of RON95 petrol grade effective Sept 1 would not affect PDB’s earnings as it would continue to earn the same fixed margin under the automated pricing mechanism formula.

CIMB Research, meanwhile, maintained its underperform rating on PDB.

“We maintain our forecasts and target price of RM7.20, pegged to an unchanged 10 times PER, which is lower than the 15 times PER we attach to upstream players. Given its defensive qualities, we expect PDB to continue to underperform the benchmark KLCI and lag behind higher-beta stocks,” CIMB said.

PDB closed unchanged yesterday at RM8.45.


This article appeared in The Edge Financial Daily, July 28, 2009.