KUALA LUMPUR: CIMB Securities Sdn Bhd has raised Petronas Dagangan Bhd's core net profit forecasts and stock target price to reflect expectations of an increase in jet fuel product sales volume and a 1-2 per cent reduction in product cost.
The firm increased its FY24F, FY25F, and FY26F core net profit projections by 24.3 per cent, 7.6 per cent, and 5.7 per cent respectively.
CIMB Securities maintained its "Hold" call on the stock with a higher target price of RM20.90, from RM20.10.
Petronas Dagangan reported a core net profit of RM348.1 million in the third quarter ended Sep 30, 2024 (3Q 2024), up 73.9 per cent YoY supported by the strong performance in the commercial segment.
The segment's operating margin rose to 4.5 per cent driven by increased sales volumesof higher-margin products such as jet fuel and diesel.
This improvement was further aided by a decline in the Mean of Platts Singapore (MOPS) price, which reduced product costs
Petronas Dagangan's average selling prices typically lags the MOPS price by about four weeks.
CIMB Securities believes however that Petronas Dagangan's high margins in commercial segment may not be sustainable in the 4Q 2024, given the ongoing volatility in jet fuel prices.
To date, jet fuel prices have declined by 3.5 per cent quarter-on-quarter in 4Q24, but are 4.6 per cent higher than the average September level.
"If prices stay at this level through Dec 2024, we anticipate a potential contraction in profit margins for 4Q24F. Consequently, the commercial segment's operating margin is projected to narrow to 2.5-3 per cent in 4Q24F," it said.
CIMB Securities said even though the immediate impact on RON95 consumption is expected to be minimal owing to the essential nature of the product, it believes that over time, the subsidy-at-the pump removal could lead to a gradual reduction in overall consumption.
"Higher-income households may be more likely to explore alternatives like electric vehicles (EVs), which are becoming increasingly attractive owing to their cost efficiency. This shift toward EV adoption presents a challenge for Petronas Dagangan's retail volume projections, and it underscores the need for careful monitoring of RON95 gasoline demand," it said.
The firm accounted for a 6.3 per cent year-on-year (YoY) decline in Petronas Dagangan's retail sales volume for FY24 and a 1.0 per cent and 0.5 per cent YoY decline in FY25 and FY26 respectively.
Meanwhile, the firm forecasts the commercial segment sales volume to grow by 9.7 per cent, 5.3 per cent, and 3.2 per cent year-on-year (yoy) in FY24F, FY25F, and FY26F, respectively, largely driven by projected jet fuel and diesel sales growth of 11 per cent, 5.8 per cent, and 3.2 per cent yoy in FY24F, FY25F, and FY26F, respectively.
This mitigates the impact of the potential decline in retail segment sales volume.