Petdag 16.10.2009

Remarkable.  The present price is back to its all time high.

Valuation:
http://spreadsheets.google.com/pub?key=tWD_ov2ZEm3y2RrDZLIGDYg&output=html

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.

PETRONAS Dagangan Berhad

Business Summary

PETRONAS Dagangan Berhad engages in the marketing of petroleum products and operation of service stations. The company markets a range of petroleum products, including motor gasoline, aviation fuel, kerosene, diesel, fuel oil, bunker fuel, lubricants, liquefied petroleum gas (LPG), and asphalt to motorists, households, airlines, shipping lines, transporters, plantations, processing and manufacturing plants, power stations, and commercial enterprises in Malaysia. It markets its products directly to customers, as well as through its network of service stations, LPG dealers, and industrial dealers. The company was incorporated in 1982 and is based in Kuala Lumpur, Malaysia. PETRONAS Dagangan Berhad is a subsidiary of Petroliam Nasional Berhad.

Exchange
Bursa Malaysia
Company Name
Petronas Dagangan
Stock Code
5681
Sectors
Paid Up Capital *
MYR 993.45
Par Value
- (as at 2008-03-31)
Market Cap *
MYR 7,848.29 (based on value of 7.9000 per share)

Performance (as at 2008-03-31) *
Total Assets:
MYR 8,609.61
Intangible Assets:
MYR 23.40
Revenue:
MYR 22,301.58
Earnings Before Interest and Taxes:
MYR 908.16
EPS (Basic) Inc. Extraordinary Items:
MYR 0.67
PE Inc. Extraordinary Items:
11.86
EPS (Basic) Exc. Extraordinary Items:
MYR 0.67
PE Exc. Extraordinary Items:
11.86
Net Income:
MYR 661.67
Dividends - Common/Ordinary:
MYR 332.91
Dividends - Total:
MYR 332.91
Goodwill:
MYR 23.40
Minority Interest:
MYR 46.73
Reserves:
-
Return On Assets:
7.69%
Return On Equity:
16.89%
Shareholder's Equity:
MYR 3,917.42

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Historical 5 Yr PE 11.3 to 15.8

Historical 10 Yr PE 9.8 to 14.0

Present PE based on 7.90 = 11.9

Earnings Yield = 8.4%

DY = 4.24% (MYR 332.91/MYR 7,848.29 )

ROTC = 16.89%

Between the end of 1998 and the end of 2007:

• total earnings were $3.129 a share,
• total dividends were $1.09 a share and
• retained earnings were $2.039 per share ($3.129 - $1.09 = $2.039) to add to its equity base.
• the company's per share earnings increased from $0.216 a share to $0.645, the difference was $0.426 a share.
• return on retained capital/earnings RORC was 0.426/203.9 = 21%

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I like this company. It is a company that I can relate to. Petronas service stations are sprouting all over the place. It has a virtual monopoly supplying energy to certain niche sectors. Its revenue has been good and profitable. It generates a lot of free cash flow. It has been reinvesting into its business regularly, and the return on the equity is a 16.89% which is one of the my investing criteria. Its ROTC is 16.89%, as this company has no borrowings. Its earnings yield is at least 2x that of the risk free FD interest rate. Its dividend has been increasing over the years and I do not anticipate any decrease in future dividend despite the poor economic environment. In fact, it is predicted that the future earnings should continue to show an uptrend, and growth is encouraging with new Petronas stations opening up in new locations funded by self generated profit. The company is debt free.

At 7.90, its PE of 11.86 is at the lower end of its historical 5 year and 10 year PEs. There is safety of capital with a reasonable potential for moderate return (low risk with moderate return) for those with a longer term investing horizon. Just loudly sharing my view, you will need to make your own investing decision based on your personal assessment.