PETRONM (Petron Malaysia): What to expect in Q4 2016
Petron Malaysia (PETRONM)
1) Business background
The oil and gas industry is usually divided into three major sectors: upstream, midstream and downstream. The upstream oil sector is commonly known as the exploration and production sector which is also the one suffering when oil price drops.
PETRON is in mid/downstream business.
It sells processed petroleum product which is the main source of energy still in Malaysia/ South East Asia.
It is in a very different ball game from upstream. When oil price drops, profit margin actually increases as retail price of petroleum drop is not as huge as the crude oil.
This can be seen as the profit picks up since Q1 2015.
2) Competition: PETRONAS DAGANGAN (PETDAG)
PETRONAS DAGANGAN (PETDAG) which is in the same industry, is trading at P/E 30, dividend yield 2.5%It should not take long for market to realize PETRON is a better option with P/E at 9.5 today and dividend yield at 4%
3) Fundamental Valuation, Financial Analysis
1Q15
|
2Q15
|
3Q15
|
4Q15
|
1Q16
|
2Q16
|
3Q16
|
21.05
|
27.18
|
27.47
|
6.02
|
6.15
|
22.79
|
17.22
|
Currently priced at 5 dollar, PETRON trailing P/E is at about 9.5. (last 4 quarters earning is 52.3 cent)
That is assuming Q4 2016 to be same as Q4 2015 which is not the case.
In Q4 2015, there was a 40-day mandatory maintenance at its Port Dickson Refinery. This is a activity mandated to perform maintenance once in several years.
PETRON hit RM 7.31 in Jan 2016 before the disappointing 4Q 15 result is released.
Perhaps investors were expecting a consistent results after posting 3 consecutive quarters of >20cents profit.
This coming quarter result Q4 2016 is a very interesting and highly anticipated quarter for PETRON as investors seek to see if PETRON can answer the below questions.
1) Can PETRON deliver 20 cents per quarter amounting to ~80 cents EPS?
There was a doubt in Q1 2016 where EPS is only 6.15 without any specific reason. Hopefully the management could exercise some form of risk management to ensure consistent of 20 cents per quarter.
2) PETRON dividend for 2015 was 20 cents. Can PETRON give more than 20c what was declared in 2015 given the strong Free Cash Flow?
If PETRON could give a good answers to the above 2 questions in the coming quarter results. PETRON would easily deserve a P/E of at least 15.
Assuming Q4 2016 EPS 20 cents. Total earning will be 66.15 cents. P/E 15 means 9.92 dollar
This coming quarter result Q4 2016 is a very interesting and highly anticipated quarter for PETRON as investors seek to see if PETRON can answer the below questions.
1) Can PETRON deliver 20 cents per quarter amounting to ~80 cents EPS?
There was a doubt in Q1 2016 where EPS is only 6.15 without any specific reason. Hopefully the management could exercise some form of risk management to ensure consistent of 20 cents per quarter.
2) PETRON dividend for 2015 was 20 cents. Can PETRON give more than 20c what was declared in 2015 given the strong Free Cash Flow?
If PETRON could give a good answers to the above 2 questions in the coming quarter results. PETRON would easily deserve a P/E of at least 15.
Assuming Q4 2016 EPS 20 cents. Total earning will be 66.15 cents. P/E 15 means 9.92 dollar
Disclaimer:
This is not a buy or sell call. Writer do own the shares of PETRON at the time of publishing.
Please read the disclaimer on the right side of the blog
