PetDag to see margin gains in Q2 as jet fuel costs ease
KUALA LUMPUR: Petronas Dagangan Bhd's (PetDag) commercial segment may see further margin expansion due to the declining trend in Jet Fuel Mean of Platts Singapore (MOPS) costs, said Hong Leong Investment Bank Bhd (HLIB Research).
The firm said this would likely be driven by the downswing in oil prices following Liberation Day in the second quarter of 2025 (2Q25).
However, HLIB Research said volume is expected to moderate slightly due to the absence of two festive holidays in 1Q25.
It added that the group's retail division should also improve quarter-on-quarter (QoQ) in 2Q25, driven by better diesel sales volume resulting from a higher number of working days compared to 1Q25.
"As such, we expect PetDag's earnings to be frontloaded in the first half of 2025 (1H25), with QoQ growth in 2Q25, while 2H25 should see some moderation as the commercial segment slides from a high base," it noted.
Meanwhile, HLIB Research also believes that the targeted subsidy programme for RON95 (likely to roll out in 2H25) will have a muted impact on PetDag's overall sales volume.
It added that, at least in the near term, the impact will be limited since the subsidy will mainly affect the T15 population segment, who are able to absorb the price hikes.
"Moreover, Malaysia's automotive sector total industry volume reached a record high of 817,000 units in 2024, with electric vehicles accounting for only 5.6 per cent.
"Thus, we reckon the demand for RON95 will remain supported by the dominant mix of internal combustion engine cars in Malaysia in the near to medium term," it said.
Overall, HLIB Research has maintained a 'Buy' call on PetDag, with a target price of RM22.38, as it views PetDag's risk-reward profile as favourable, given its ability to sustain diesel sales volume following the subsidy cuts.
"We reckon the market might have overestimated the impact of the subsidy rationalisation programme on PetDag's earnings outlook.
"Also, the stock commands an attractive financial year 2026 (FY26) forecast dividend yield of 5.5 per cent, based on the current share price," it said.
RHB Investment Bank Bhd (RHB Research) cautioned that the impact of the RON95 subsidy rationalisation on PetDag's retail sales volume will largely depend on the specifics of its implementation.
It added that the government remains committed to implementing the RON95 subsidy rationalisation in 2H25, with an official announcement from the Ministry of Finance expected soon.
The subsidy is still expected to cover 85 per cent of the population.
"However, the latest reports stated that Prime Minister Datuk Seri Anwar Ibrahim disagreed with the Cabinet's proposal of a fuel price hike and suggested that the subsidy removal should instead apply to foreigners.
"Depending on the implementation mechanism, we do not discount the possibility of this having a negative impact on retail sales volume, including a potential reduction in illegally exported motor gasoline," it said.
PetDag's retail sales volume fell 11 per cent year-on-year (YoY) on lower diesel sales, but its commercial sales volume increased by 13 per cent YoY in 1Q25.
The convenience segment also continued to deliver better profitability, up 40 per cent YoY in 1Q25, driven by lower opex despite flattish Petronas Shop merchandise sales.
As such, RHB Research has maintained a "Neutral" view on PetDag, with a higher target price of RM18.90, up from RM18.37 previously.
It remains cautious on the group's outlook, as the share price overhang may persist pending uncertainties over the impending implementation of the RON95 subsidy rationalisation starting in 2H25.
In terms of financials, PetDag's net profit rose 29.8 per cent to RM293.5 million in 1Q25, up from RM226.04 million a year ago, supported by lower expenditure and higher other income.
Both HLIB Research and RHB Research noted that the group's 1Q25 results were within expectations, with an improved bottom line driven by lower operating expenses despite weaker sales volume.
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