KUALA LUMPUR: CGS-CIMB Research has cut Petronas Dagangan Bhd’s (PDB) financial year 2020 net profit forecast by 17 per cent as the group expects sales of jet fuel and sales of liquefied petroleum gas (LPG) tanks to commercial restaurants to fall 20 per cent year-on-year (yoy).
The research house said PDB’s guidance tallies with its forecast of a 20.2 per cent yoy decline in overall air traffic passengers in Malaysia.
It said PDB’s sales volume forecast in 2020 is now for a 10.6 per cent yoy contraction, with commercial volumes expected to fall 13.8 per cent and retail volumes expected to fall 7.5 per cent – with LPG volumes expected to fall 7.5 per cent yoy.
Earlier in March, CGS-CIMB has factored in a 0.6 per cent yoy drop in sales volume in 2020, on the back of a 3.8 per cent yoy partly offset by retail volume growth of two per cent yoy.
However, in order to tackle the Covid-19 outbreak in Malaysia, the government imposed the Movement Control Order (MCO) from March 18 to 31, which has now been extended to April 14.
“All these measures are having a devastating impact on demand for transportation fuels, including motor gasoline and aviation jet fuel,” it said.
Separately, CGS-CIMB said the oil price rout which followed the price war between Saudi Arabia and Russia has two negative impacts on PDB.
Firstly, lagged inventory losses may be sharper than expected in the first quarter of 2020 because Brent crude price has fallen to only US$26 per barrel.
Secondly, the research firm believe that Petroliam Nasional Bhd (Petronas) is reviewing its upstream capital expenditure spending and any cuts will result in lower diesel sales to the upstream sector.
Finally, with so many restaurants closed across the entire country, sales of LPG cooking gas tanks have plunged, although this may be partially offset by higher sales of LPG tanks to the household sector.
Despite the cuts, CGS-CIMB has reiterated an “Add” call on PDB, with a lower target price of RM23.50 from RM24.28, as it expects inventory losses to normalize or even reverse in future periods while we expect volumes to recover once the Covid-19 outbreak is curtailed.