MARC has affirmed its MARC-1_IS/AAA_IS 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.

PDB’s ratings 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 ratings equalisation is based on MARC’s assessment of a very strong parent-subsidiary relationship between the entities as evident from the significant operational linkages and their shared branding, among other factors.

PDB serves as the marketing arm of PETRONAS’ downstream petroleum products. It maintains a strong market position in two key segments: retail (mainly motor gasoline and diesel) and commercial (mainly aviation fuel and diesel). Its strength is underpinned by strong recognition of the PETRONAS brand. PDB’s retail segment continues to benefit from an extensive distribution and logistics network of more than 1,000 petrol service stations in Malaysia. During 9M2017, PDB’s retail sales volume declined by 5.0% y-o-y partly due to temporary station closures for renovation and upgrading activities.

For the commercial segment, sales volume increased by 1.0% y-o-y during 9M2017 on the back of higher growth in the diesel and aviation fuel segments which are attributed to newly secured contracts and increased flight frequencies by several airlines. Earnings from these segments would remain relatively more volatile given the cyclical nature of the commercial business. PDB’s two other business segments are the liquefied petroleum gas (LPG) and lubricants segments which have remained small in terms of revenue contribution.

For 9M2017, PDB’s revenue rose by 26.6% y-o-y to RM19.7 billion owing to higher average selling prices of its products. As the Mean of Platts Singapore (MOPS) prices rose during the period, the company benefitted from inventory lag gain. However, the gain was offset by higher operating expenses. As a result, overall operating profit margin was relatively stable at 5.4%. Net profit rose by 84.4% y-o-y to RM1,264.9 million, boosted by a net gain of RM430.8 million on disposal of its overseas subsidiaries. Excluding the one-off gain, profit would have increased by 28.2% y-o-y to RM834.1 million.

Cash flow from operations (CFO) declined to RM1,077.6 million during 9M2017 (9M2016: RM1,272.7 million) due to higher settlement of payables. The lower CFO, coupled with higher dividend payment of RM576.2 million have resulted in a decline in free cash flow (FCF) to RM485.3 million (9M2016: RM781.2 million). During the period, PDB incurred a lower capital expenditure of RM54.3 million. The company’s liquidity position remained strong, with cash balances increasing to RM3,480.2 million as at end-September 2017. In addition, PDB maintains a conservative capital structure, as reflected by its debt-to-equity (DE) ratio of 0.01x.

The stable outlook on the ratings reflects MARC’s expectation that PDB’s credit profile would remain within the rating threshold, underpinned by the strong parental linkage to PETRONAS.

Contacts:
Joan Leong, +603-2717 2934/ joan@marc.com.my;
Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my.