Can future dividends sustain 130% payouts?
? 1Q22 core net profit was below expectations at 19%/16% of our/consensus
full-year estimates due to commercial losses during the quarter.
? Reiterate Hold with a lower DDM-based TP of RM20.94 as we raise the cost
of equity discount rate on the back of the higher Malaysian risk-free rate.
? Although PDB is a recovery play, valuations are not cheap relative to the
likely DPS payments; PDB also surprisingly slashed its 1Q22 dividend.
Commercial loss dragged down higher retail profits in 1Q22
1Q22 core net profit of RM119m w as 19% lower qoq due to weaker commercial
performance and sequentially higher depreciation expense, which more than offset
stronger retail performance. Group EBITDA in 1Q22 rose 11% qoq but this masked tw o
diverging elements: retail EBITDA rose 86% qoq on the back of lagged inventory gains
due to the rise in oil prices while retail volumes probably declined qoq as PDB exited the
seasonally-strong 4Q21. How ever, commercial EBITDA fell into a loss of RM35m in
1Q22 vs. a profit of RM62m in 4Q21 because PDB could not fully pass on the surge in
Mean of Platts Straits (MOPS) costs of jet fuel and diesel during the quarter as
commercial selling prices in any month tend to be pegged to costs prevailing in the
previous month. The commercial arm suffered an EBITDA loss despite sales volumes
likely rising qoq due to increased volumes of jet fuel sales as airlines gradually restore
flying capacity. Separately, depreciation expense rose qoq in 1Q22 because the 4Q21
depreciation w as atypically low due to certain non-recurring writebacks. On a yoy basis,
the 1Q22 core net profit fell 37% on the commercial loss despite better retail profits.
1Q22 dividend payout disappointed at only 42%
PDB declared a DPS of 5 sen in 1Q22 (42% payout), low er than 1Q21’s 14 sen (73%
payout), 2Q21’s 10 sen (121% payout), 3Q21’s 20 sen (167% payout), and 4Q21’s 26
sen (188% payout). We are unsure w hy PDB’s dividend payout fell sharply in 1Q22 as no
reason w as disclosed. For FY21, PDB declared a total DPS of 70 sen or 131% payout.
For the year before, i.e. FY20, PDB declared a total DPS of 38 sen or 137% payout.
Based on the past two years’ precedents, w e modelled the FY22-24F dividend payout at
133-135%, resulting in DPS assumptions of 75 sen for FY22F, 110 sen for FY23F, and
115 sen for FY24F. If these assumptions are overly generous, there may be downside to
our TP for PDB, which is based on the DDM method. PDB’s dividend policy is for at least
50% payout; the floor is much below our current forecasts.
Cut in DDM-based target price due to higher discount rate
Our DDM-based TP has been cut 3.3% from RM21.66 to RM20.94, principally because
of an increase in our cost of equity discount rate from 7.3% to 7.85% on the back of an
increase in the risk-free rate (as represented by the yields on 10-year Malaysian
Government Securities) from 3.7% to 4.25%. Upside risk: stronger-than-expected
demand recovery now that Malaysia’s international borders have reopened.