MARC Ratings has affirmed its MARC-1_IS/AAA_IS ratings on PETRONAS Dagangan Berhad’s (PDB) RM10.0 billion nominal value Islamic Commercial Papers (ICP) Programme and Islamic Medium-Term Notes (IMTN) Programme. The ratings outlook is stable. 

The affirmed ratings reflect PDB’s well-established track record and its very strong market position in the domestic retailing and marketing of petroleum products. The ratings incorporate PDB’s strong balance sheet and liquidity position. MARC Ratings views PDB’s strategic importance to the Petroliam Nasional Berhad (PETRONAS, AAA/Stable) group, being the retail and marketing arm of PETRONAS for its downstream petroleum products, as a credit positive. 

PDB has an extensive distribution network which provides a key competitive advantage in the retail segment. It has over 1,000 petrol stations across the country. The company added 10 new petrol stations in 2022 and plans to add 10-15 petrol stations a year going forward. In the commercial segment, PDB has a commendable market share of jet fuel sales. The group’s longstanding relationships with major local carriers coupled with its supply capabilities underpin strong recurring contract orders. 

In 3Q2023, PDB’s revenue increased by 0.8% y-o-y to RM27.5 billion as retail and commercial sales volumes rose by 7.0% and 12.0%. This reflected continued solid recovery in domestic demand and international travels. Revenue growth was, however, moderated by a 15.0% fall in the average selling price in the commercial segment amid lower crude oil prices during the period.

Pre-tax profit increased to RM1,045.7 million in 3Q2023 as margin broadened to 3.8%. Cash flow from operations (CFO) improved to RM781.4 million due to higher receipts of subsidy receivables. Liquidity position remains strong with cash and cash equivalents of RM2.7 billion as at end-September 2023. 

PDB’s borrowings have historically been modest, standing at just RM152.9 million as at end-September 2023, with a very low debt-to-equity (DE) ratio of 0.03x. The rating agency does not anticipate any significant increase in PDB’s borrowings in the near to medium term, considering the company’s moderate capex requirements of about RM450 million p.a. relative to its strong operating cash flow generation.

The stable outlook reflects our expectation that PDB will broadly maintain its credit metrics that are commensurate with its rating band over the next 12 to 18 months.

The rating could come under downward pressure should PDB’s business and financial metrics deteriorate significantly below expectations and/or if its role and strategic importance to the PETRONAS group decrease and have a material adverse impact on PDB’s credit metrics.