MARC has affirmed its MARC-1IS/AAAIS ratings on PETRONAS Dagangan Berhad’s (PDB) Islamic Commercial Papers (ICP) and Islamic Medium-Term Notes (IMTN) Programme of up to RM2.0 billion. The outlook on the ratings is stable.
The ratings affirmation reflects PDB’s strong financial metrics, characterised by its sound liquidity and strong leverage position. PDB’s ratings also incorporate high parental support from Petroliam Nasional Berhad (PETRONAS) on which MARC maintains a public information rating of AAA/MARC-1/stable. The stable outlook on the ratings reflects MARC’s expectation that PDB will continue to maintain its current credit profile.
PDB is a leading domestic player of downstream petroleum products, benefitting from an extensive network of more than 1,000 petrol stations across the country. It has a strong market position which is underpinned by the well-established PETRONAS brand. PDB’s businesses are divided into four core segments: retail (mainly motor gasoline and diesel), commercial (mainly airline fuel), liquefied petroleum gas (LPG) and lubricants. PDB retains a healthy market share in the retail and commercial segments, contributing about 50.7% and 49.3% to group revenue of RM22.2 billion for 9M2018. Total group revenue rose by 9.4% y-o-y, largely due to higher average selling prices on higher Mean of Platts Singapore (MOPS) prices, the benchmark prices for refined products.
Its pre-tax profit, however, increased slightly by 3.7% y-o-y to RM1,106.9 million (9M2017: RM1,066.9 million) due to lower sales volume and higher operating expenses which were mainly due to higher staff costs as well as advertising and promotion expenses incurred during the period. Operating profit margin declined to 5.0% from 5.3%. MARC notes that changes in pump prices have had no impact on PDB’s pricing mechanism as it adheres to the Automated Pricing Mechanism under which it is assured of a fixed profit rate that affords earnings stability in the retail segment. The operating performance of the commercial segment, however, will continue to be susceptible to fluctuations in oil prices and economic cycles.
Cash flow from operations (CFO) declined to RM454.4 million during 9M2018 (9M2017: RM1.1 billion) mainly due to payment delays from the government, which are expected to be resolved over the near term. Going forward, CFO is expected to be less volatile upon the implementation of a new fuel subsidy scheme in 2Q2019 which will target a select group of consumers, leading to lower subsidy claims.
During 9M2018, PDB incurred higher capex of RM187.3 million, largely due to expenditure for the renovation and upgrading of petrol stations. The lower CFO, higher capex and higher dividend payment of RM774.9 million resulted in negative free cash flow of RM484.1 million (9M2017: RM485.5 million). Nevertheless, PDB has strong liquidity as reflected by cash balances of RM2.9 billion as at end-September 2018. The leverage level remained low with a debt-to-equity (DE) ratio of 0.01x. There is currently no outstanding amount under the rated programme.
Contacts:
Lee Kar Xuan,
+603-2717 2964/
karxuan@marc.com.my;
Sharidan Salleh,
+603-2717 2954/
sharidan@marc.com.my
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