Modest retail volume growth from RON95 price cut

The Star

3 days ago

PETALING JAYA: Petronas Dagangan Bhd (PetDag) is not expected to see a material shift in its earnings trajectory despite the recently announced changes in RON95 petrol pricing. While the lower subsidised pump price may offer minor volume support, CIMB Research believes the impact on the fuel retailer's bottom line will be neutral in the near to medium term.
The brokerage maintained a 'hold' call on PetDag, with a discounted cash flow (DCF)-derived target price of RM20.90.
In its report, CIMB Research stated: 'We maintain our earnings forecasts, as the pump price adjustment for RON95 appears to be primarily aimed at easing cost-of-living pressures, rather than driving a meaningful uplift in fuel demand for retailers like PetDag.'
Prime Minister Datuk Seri Anwar Ibrahim, in a televised address on 23 July, confirmed the government's targeted subsidy rollout for RON95 petrol, set to begin by end-September. Under the new structure, eligible Malaysians will pay RM1.99 per litre, down 2.9% from RM2.05, while foreign nationals will pay the full market price of RM2.50 per litre.
According CIMB Research, the RON95 pump price cut came as a surprise given the government's fiscal tightening stance.
'The reduction in RON95 retail pump prices for Malaysians to RM1.99 per litre is an unexpected development in our view, as it signals a more generous effective subsidy per litre than previously anticipated, especially against a backdrop of subdued global oil prices and the government's continued efforts to tighten fiscal spending.'
Despite the cut, CIMB Research expects retail volume growth to be modest. 'The reduced pump price is anticipated to be mildly positive for PetDag as it may support incremental demand, although we expect the impact on retail volumes to remain limited. This view is supported by the relatively inelastic nature of fuel demand in Malaysia,' it noted.
The research house further noted that any demand gains may be offset by changes to subsidy eligibility. 'Any incremental volume gains are likely to be partially offset by the exclusion of non-citizens from subsidised pricing; foreign nationals will face unsubsidised market rates of around RM2.50 per litre, based on current prices,' it explained.
On subsidy mechanisms, CIMB Research added, 'PetDag operates under Malaysia's automatic pricing mechanism, which ensures retail fuel margins remain protected, with the government reimbursing the difference between market and subsidised prices.'
However, it cautioned that the primary downside risk lies in potential delays in subsidy reimbursement by the government stretching PetDag's working capital and cash flows.
While PetDag posted strong commercial margins in the first quarter of 2025 (1Q25), the research firm flagged potential headwinds ahead. 'Although PetDag's 1Q25 performance was strong, supported by robust margins in the commercial segment, we believe this trend is unlikely to be sustained owing to slower economic activity and persistently soft market conditions, which may weigh on commercial fuel profitability.'