CREDIT ANALYSIS REPORT

PETRONAS DAGANGAN BERHAD - 2015

Report ID 5180 Popularity 1505 views 1 downloads 
Report Date Jan 2016 Product  
Company / Issuer Petronas Dagangan Bhd Sector Infrastructure & Utilities - Oil & Gas
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Rationale

MARC has affirmed its AAAIS/MARC-1IS ratings on PETRONAS Dagangan Berhad’s (PDB) Islamic Commercial Papers and Islamic Medium-Term Notes Programme (Sukuk Programme) of up to RM2.0 billion. The outlook on the rating is stable. The affirmed ratings of PDB are equalised to the ratings of its parent Petroliam Nasional Berhad (PETRONAS) on which MARC maintains public information ratings of AAA/MARC-1/Stable. The strong parent-subsidiary relationship, operational linkages between the entities and shared branding underpin the rationale for the ratings equalisation.

PDB remains a key player in the domestic petroleum downstream sector; the retail and commercial segments respectively contributed 49.4% and 46.7% of PDB’s total revenue for 9M2015. It has a strong competitive advantage in the retail segment, derived from a wide logistics network of more than 1,000 stations as at end-September 2015 and from the strong “PETRONAS” brand recognition. PDB’s operating performance, however, was affected by lower demand on the back of a slowing economy with commercial and retail sales continuing to trend lower in 9M2015.

For 9M2015, revenue decreased by 23.2% year-on-year (y-o-y) to RM19.1 billion; however, pre-tax profit rose by 37.0% to RM955.5 million (9M2014: RM697.6 million), partly due to cost optimisation measures. MARC also notes that the managed float pricing system which was implemented in December 2014 has had no material impact on PDB’s profitability as the new system has removed the subsidy component from the automatic pricing mechanism. As with other retailers, PDB’s operating performance remains dependent on fuel demand and the movement of the Mean of Platts Straits (MOPS) price; its pump prices are revised on a monthly basis and are based on the average MOPS prices of the preceding month. As such, the volatility in MOPS prices will affect PDB’s profitability.

For 9M2015, cash flow from operation (CFO) remained strong at RM513.4 million (9M2014: RM636.6 million) and is sufficient to cover PDB’s short-term financial obligations. Negative free cash flow (FCF) widened to RM198.3 million (9M2014: negative RM31.5 million) as a result of lower CFO and higher dividend payment of RM484.2 million. Nonetheless, PDB’s cash balance remained strong at RM1,389.1 million. PDB continues to retain a conservative capital structure, with the debt-to-equity (DE) declining to 0.05x as at end-9M2015 from 0.1x from the previous corresponding period. The leverage level has remained low with a debt-to-equity (DE) ratio of about 0.10x in the last three years.

The stable outlook reflects MARC’s assessment that PDB’s credit profile would remain strong over the next 12 to 18 months, underpinned by the high likelihood of parental support from PETRONAS.

Major Rating Factors

Strengths

  • Well-established business profile;
  • Strong operational integration with parent PETRONAS; and
  • Strong debt protection metrics.

Challenges/Risks

  • Volatile commercial segment; and
  • Managing the risks inherent in its growth strategy.
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