KUALA LUMPUR: The impact of fuel subsidy rationalisation on Petronas Dagangan Bhd (PetDagang) in the near term may be less severe than expected, said Kenanga Research.
Concerns over PetDagang's outlook increased when the government announced the removal of the diesel subsidy for retail channels in July 2024, aimed at curbing diesel smuggling, particularly along the northern border of Peninsular Malaysia.
However, Kenanga Research believes that the near-term impact on PetDagang's overall diesel volumes may be more muted than what the market had anticipated.
"A relevant case study is the Indonesian market, where gasoline subsidies were partially removed in 2015, yet gasoline sales volumes per day continued to grow from 470,000 barrels per day gradually to 670,000 barrels per day by 2023," it said in a note.
Meanwhile, Kenanga Research said PetDagang's first half of 2024 (1HFY24) was within the firm's and street's estimates.
Highet operating expenses (opex), year on year, resulted in lower core earnings for 1HFY24.
"We cut our target price by 11 per cent to RM21.20 after increasing our weighted average cost of capital to account for the timing uncertainties of the RON95 subsidy rationalisation.
"Despite that, the implied FY24 price earning ratio would be at 21.2 times, still below its five years mean of 26.5 times. We maintain our forecast and Outperform call," it added.