PetronM: Earnings Dropped Slightly

Results Update

For QE31/12/2017, PetronM's net profit dropped 6% q-o-q and 12% y-o-y to RM99 million while revenue rose 11% q-o-q or 24% y-o-y to RM2831 million. Revenue rose y-o-y due to 10%%-increase in total sales volume from 8.3 million barrels last year to 9.1 million barrels this year. Despite higher revenue, profit before tax dropped due to lower gross margin, which dropped 31% as compared to last year. The drop in gross profit margin was attributed to narrowing of crack spread where crude oil prices rose faster than product price increase. In my opinion, the period of abnormally high gross profit margin is over. Along with that, the super-normal profit for refineries will also cease.


Table: PetronM's last 8 quarterly results  


Graph: PetronM's last 22 quarterly results  

Valuation

PetronM (closed at RM11.48 last Friday) is now trading at a PER of 7.7 times (based on annualized EPS of 150 sen). At this PER, PetronM is deemed fvery attractive. However, if you agree that PetronM is now coming off its earning peak, then its share price will likely to trend lower as its earnings continue to go lower.

Technical Outlook  

PetronM has broken its intermediate uptrend line, SS at RM13.00 in late January. It has support at the horizontal line at RM10.60-10.70.


Chart 1: PetronM's weekly chart as at Feb 23, 2018 (Source: ShareInvestor,com)

From the monthly chart, we can see PetronM rallied strongly in the past few months after it broke above the upper line of the irregular upward channel. If the share prices were to drift lower, this upper line may provide support for the stock at RM8.50.


Chart 2: PetronM's monthly chart as at Feb 23, 2018 (Source: ShareInvestor,com)

Conclusion

Based on potential peak earnings and negative technical outlook, I think it is a good time to take profit on PetronM. Based on the same logic, you should also take profit on Hengyuan if you have that stock.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.