Petronas Dagangan: Investing In A Petrol Kiosk

Got an note from an old acquaintance. :D

• bullbear said...
  When you find the time, kindly analyse Petdag.

Love the sense of humour.

Since I do have the time, here's the posting. :D

As usual I will look for my chart of PetDag.

1. The Numbers

...

Dot Dot Dot would been my review because it's simply so clear and that BB could explain it all. But Dot Dot Dot? That reminded me of.... LOL... Mama Mia the Movie. :P

Ok... that was just some light humour. I believe the world should really invest in it! ( ps: invest in humor! ps/ps: which spelling would you prefer? The one with the u or without? :P)

Anyway... here are some flawed views from me.

1. From the table, it was clear that Petdag fortunes changed for the good since its fy 2006. And even today, the study of why and how a stock became a huge winner is not a waste of time. Not for me. As much as I love to study failures, I do spend as much time studying success. I do. ( However, such stuff are more sensitive because I could always be wrong and the the one doing the follow you, follow me strategy would be left cursing. Seriously!

Nah! I lied. I am simply a scrooge! *whistle* )

So where were you on May 2006?

Miss this one? Quarterly rpt on consolidated results for the financial period ended 31/3/2006

The company said:

• Group revenue for the quarter and year ended 31 March 2006 rose by RM1,015.1 million to RM4,283.4 million and RM4,116.8 million to RM16,567.9 million respectively from the results of the same period last year. This is due to higher sales volume and average selling price.

That was the classical 'change' of fortune. The good cycle is here! Higher sales volume and average selling price, that's the two main ingredient to make a company extremely profitable!

And PetDag had a new product! PETRONAS Dagangan Berhad - Introduction of New Product

6th June 2006: Primax 3 to fuel Petronas Dagangan sales (that article no longer appears on nstp website. Article is good because it has several key points..)

• ............... PETRONAS Dagangan Bhd, the domestic marketing arm of Petroliam Nasional Bhd (Petronas), is targeting double-digit growth in sales of petrol for the current financial year ending March 31 2007.
  
  The target will be realised with the introduction of Petronas Primax 3, which replaces Petronas’ existing petrol brand, Primax.
  
  Petronas Dagangan chief executive officer and managing director Ibrahim Marsidi said the company sold 3.5 billion litres of petrol in the last financial year.
  
  “Currently, we have 31 per cent of petrol market share.
  
  “Our growth (in sales) is always two or three times more than the industry growth,” he said during a briefing on Petronas Primax 3 in Kuala Lumpur yesterday.
  
  .................... Petronas Dagangan said the new fuel offers customers maximum power output, better fuel economy and a cleaner engine —minus the premium price.
  
  ......... In a related development, Ibrahim said the company plans to build between 60 and 70 petrol stations through the country this year.
  
  Investment in each of the station, including the land cost, is about RM5 million.
  
  Petronas currently has 790 petrol stations nationwide.
  
  Petronas Dagangan is the largest petroleum products marketer in the country, with 40 per cent market share of petroleum products.

The expansion plan was laid out... the company had a new product... better average selling price... and bigger sale volume.

The fundamental of the business simply changed for the better. The wind of fortune. :D

And come March 2007, the investing community took note, with CIMB starting the ball rollin! On Star Biz.

• Saturday March 31, 2007
  
  Petronas Dagangan on track to be biggest petrol outlet operator
  
  By HARI RAJ
  
  THE world spent much of last year craning its collective neck to see how high oil prices would soar. Though skyrocketing energy costs swiftly depleted wallets and coffers alike, companies involved in the oil and gas sector were laughing all the way to the bank.
  
  Though oil prices have levelled off somewhat, there is still sufficient strength of sentiment in the sector to spill over to the likes of Petronas Dagangan Bhd (PDB). Going by its market capitalisation of RM5.8bil, it is Malaysia's biggest oil and gas stock, dominating the sector's total market capitalisation with a share of some 25%.
  
  The company is looking to translate this strength to its retail expansion programme. Though Shell is the current leader in the retail segment, with some 825 stations working out to a 33% market share, CIMB points out that PDB is a close second with 30%.
  
  Following a recent company visit, it notes that PDB's expansion programme is on track, what with 34 new petrol stations having been set up thus far in the 2007 financial year (FY07, ending March). Most of these stations have been situated in urban areas, at a cost of RM8mil each including land costs.
  
  “With 36 new stations waiting to start operations, we are confident PDB will at least meet our assumption of 47 new stations for FY07, bringing the total number of stations to 832 at end-March. In our forecasts, we have factored in 50 new stations in FY08, followed by another 53 in FY09,” says the house in a note.
  
  PDB's approach to expansion looks to be a measured one, as it will only open new stations if a sales volume of at least 400,000 litres per month can be generated. This is a far cry from the much lower target of 250,000 litres per month that was in effect a few years ago.
  
  In fact, PDB's average sales volume per outlet is 570,000 litres per month, which is estimated to be 90% of Shell's average. The company spends RM500mil a year on capital expenditure, 80% of which is allocated to retail.
  
  PDB has also been aided in picking up the pace of expansions by a new one-stop unit at the Domestic Trade and Consumer Affairs Ministry, which has cut the approval time for petroleum retail investment applications from two to three years to an equivalent number of months, writes CIMB.
  
  Regarding the expansion trail, reports earlier this year indicated that Petronas could be eyeing ProJET's 147-station Thai network. Though PDB cannot operate outside Malaysia, speculation has it that the company could be seeking to buy ProJET's network of 40 stations in Malaysia, which is currently loss-making. PDB's management has thus far refused to comment on this possibility.
  
  Record profits in store?
  
  In February, Malayan Banking Bhd (Maybank) marked the launch of its 200th automated teller machine (ATM) at a PDB station in Shah Alam. The collaboration between the two has come a long way since Maybank installed its first ATM at the Petronas service station at Jalan Ampang, Kuala Lumpur, in 1985.
  
  According to Spencer Lee, the bank's senior executive vice-president and head of consumer banking, Maybank will install 500 more ATMs at petrol stations during its current financial year, half of which will be at PDB stations. Currently, 200 of the 300 Maybank ATMs installed at petrol stations are located at PDB facilities.
  
  Lee went on to say that some 20,000 transactions per month are conducted at each Maybank ATM located at petrol service stations. Though this pales in comparison to the 24 million transactions per month recorded at the bank's other ATM's, CIMB points out that that retail is very much a volume game, and the presence of an ATM and a convenience store or restaurant can help bring in all-important traffic.
  
  Another area that merits highlighting is PDB's profit track record. The company's cumulative third-quarter net profit came to RM471.2mil, or 77% of CIMB's full-year forecast.
  
  “With its retail expansion programme progressing as scheduled, and crude oil prices and the RM/US$ exchange rate trading at favourable rates, PDB looks set to at least meet our full-year net profit forecast of RM608.1m (up 20% year-on-year), an all-time high for the company,” says the research house.
  
  Given the potential record earnings for FY07, CIMB has highlighted a dividend play on the company, believing that investors can expect a final dividend per share (DPS)of at least 15 sen.
  
  This will bring PDB's full year dividend to an estimated 25 sen, the company's second highest ever after the 40 sen paid out in FY03 (though this included a special dividend of 20 sen in conjunction with its 20th anniversary).
  
  Earnings stability
  
  Going forward, the computation of duties or subsidies is now based on current spot prices rather than the previous month's prices, meaning that there is no longer a lag effect from the automatic pricing mechanism (APM).
  
  Despite this previous lag causing an erratic earnings pattern, PBD was consistent in its payment of dividends, though it has no plans to introduce a dividend policy.
  
  “With the lag effect now a thing of the past, we expect some stability in the company’s earnings per share growth, making it an ideal long-term investment, on top of an excellent play on three themes, namely dividends, mergers and acquisitions and Visit Malaysia Year 2007,” says CIMB.
  
  It adds that PDB is in a net cash position of RM592mil or 60 sen per share, inferring that it can afford potential acquisitions such as ProJET's network of stations. The company also has no long-term loans, and is not expected to take on any during the period forecasted.
  
  It's also worth noting that PBD has also diversified the segments in which it is involved. The timing of its push into aviation fuel, bitumen and commercial diesel was opportune, as some commercial users switched to cheaper, cleaner alternatives. Likewise, PBD is also Malaysia's largest supplier of cooking gas.
  
  CIMB is maintaining its target price of RM7.74 pegged to an unchanged forward price earnings ratio of 11 times (x), a 10% premium to the downstream valuation.
  
  “Given the 33% share price upside and 4% to 6% dividend yields, PDB remains firmly an Outperform with the potential share price triggers being a substantial drop in crude oil price, further strengthening of the ringgit, and M&A activities in the retail and LPG segments,” sums up the house. (ps: That naughty insinuation from CIMB on ProJet was denied by PetDag! :D )

And PetDag simply delivered.

Quarterly rpt on consolidated results for the financial period ended 31/3/2007

I produce the numbers table once more.

fy 2007, earnings surged to 640.307 million. The previous year, earnings were just 504.722 million. Stunning growth. And most important, the last column, that's the total amount PetDag paid in dividends to its share holders. The previous fiscal year it paid 107.293 million. FY 2007 it paid 178.821 million. And PetDag was fairly clean and solid. Debts were minimal and with a piggy bank cash of some 544.013 million, my favourite Auntie would be screaming 'Wait for what? Wait for police to catch?' :P

And seriously, the rest was history!

PetDag last reported earnings was in May 2010: Quarterly rpt on consolidated results for the financial period ended 31/3/2010

And it gave its shareholders a massive, surprise! A 15 sen Special Dividend was added along with a 30 sen Final Dividend!

Earnings growth is hot and more dividends were given each year! Tell me, if this isn't the holy grail one is seeking?

And as you can see from the stock chart on top of the posting, the market loved what they saw!

And at the end of last month, PetDag discussed about its new capex to the media. Petronas Dagangan allocating RM500mil capex this year

• Wednesday July 28, 2010
  Petronas Dagangan allocating RM500mil capex this year
  By EDY SARIF
  
  KUALA LUMPUR: Petronas Dagangan Bhd is allocating RM500mil for capital expenditure (capex) for the current financial year 2010/2011 from RM400mil in the last financial year, according to managing director/chief executive officer Amir Hamzah Azizan.
  
  “From that amount, up to 85% of the capex will be used to grow our retail segment. We want to grow our retail and lubricant segments and we are aiming to set up 30 new stations every financial year,” he said yesterday after the company’s AGM.
  
  The company is in the domestic marketing of petroleum products and currently holds 32% market share of the retail business and 21% of the domestic lubricant market.
  
  It is also the domestic marketing arm of Petroliam Nasional Bhd (Petronas) which holds a 69.86% stake in the company.
  
  Amir said the company was now number two in the retail segment behind Shell.
  
  “The company’s liquefied petroleum gas (LPG) business has increased its market share to about 52%, consolidating our position as the market leader,” he said, adding that the retail and commercial business made up 46% and 47% of the company’s revenue with LPG accounting for the remainder.
  
  For the financial year ending March 31, 2010, the company posted net profit of RM752.9mil on revenue of RM20.7bil.
  
  On the outlook of the company, Amir, who was appointed chief executive officer of the company last month, said Petronas Dagangaan planned to grow in line with the country’s economy.
  
  “There are still new pockets of population growth in Malaysia and this has to be served with new stations. We also will continue to look at operating cost improvement to sustain or improve our margins,” he said.
  
  On the impact of the fuel price hikes recently implemented by the Government, Amir said that as long as consumption grew, it would not impact the company’s revenue or profitability.
  

How?

Actually BB knows more. LOL!

Don't believe? DO go ask BB. :D

ps: I am really not a Sotong, which means I have no idea what will happen.... next. :P