Petgas- bottom-line recovered

Results Update

Petgas has just announced its results for QE30/6/2011. Its net profit increased by 45% q-o-q to RM387 million on the back of a small 3%-increase in turnover. The improvement was attributed to lower cost of revenue. Compared to the same quarter last year, Petgas's net profit was up only by 1% on the back of a 5%-increase in turnover.


Table 1: Petgas's last 8 quarterly results



Chart 1: Petgas's last 20 quarterly results



Chart 2: Petgas's profit margin over the last 20 quarters

Valuation

Petgas (closed at RM13.54 yesterday) is now trading at a PE of 15.6 times (based on last 4 quarters' EPS of 72.93 sen). Based on this multiple, Petgas is deemed fully valued. As noted earlier, Petgas has a few big projects in hand which could boost its top-line & bottom-line significantly. These projects may only come on-line over the next 2 years.

Technical Outlook

Petgas had a sharp drop during the recent selldown. It tested its 100-day SMA line support at RM12.20. The stock has a very strong horizontal support at RM12.00. It had since rebounded & surpassed its horizontal resistance at RM13.50-13.60. It may re-test its recent high of RM14.00.


Chart 3: Petgas's daily chart as at Aug 17, 2011 (Source: Tradesignum)



Chart 4: Petgas's monthly chart as at Aug 1, 2011_plotted on log scale (Source: Tradesignum)

Conclusion

Based on fully valuation, I would maintain my earlier rating for the stock which is to sell into strength. While Petgas has a few exciting projects in the pipeline, these projects may only kick in over the next 2 years. This conservative approach would serve us better given the poor market sentiment & the challenging economic conditions, both locally & globally.