MARC Ratings has affirmed its MARC-1IS/AAAIS ratings on PETRONAS Dagangan Berhad's (PDB) RM10.0 billion nominal value Islamic Commercial Papers/ Islamic Medium-Term Notes (ICP/IMTN) Programmes. The long-term rating outlook was kept at stable.
MARC added the affirmed ratings reflects PDB's well-established track record and its very strong market position in the domestic retailing and marketing of petroleum products. The ratings also incorporate PDB's strong liquidity and very low leverage level. Its strategic importance to the Petroliam Nasional Berhad group as PETRONAS' retail and marketing arm for downstream petroleum products is a rating consideration.
PDB's extensive distribution network of over 1,000 petrol stations across the country provides competitive advantage in the retail segment. The company added 20 new petrol stations in 2023 and plans to add around 10 new petrol stations a year going forward. In the commercial segment, PDB has a commendable market share of jet fuel sales. The group's strong supply capabilities and longstanding relationships with major local carriers underpin strong recurring contract orders.
In 1H2024, PDB's revenue increased by 10% y-o-y to RM19.2 billion, driven by a 6% growth in overall sales volume and 4% increase in average selling prices. Pre-tax profit, however, declined marginally by 8% y-o-y to RM722.9 million, partly due to relatively higher product costs and operating expenditures.
The rating agency notes that the implementation of the targeted diesel subsidy in June 2024 has had no immediate significant impact on PDB as the decline in retail diesel volume was partially offset by the growth in commercial diesel volume. Total diesel sales recovered in July 2024. The swift normalisation of diesel sales highlights the fuel's importance in the transportation sector.
Cash flow from operations (CFO) more than doubled in 1H2024 y-o-y to RM2.18 billion, mainly due to higher receipts of subsidy receivables. PDB has solid liquidity as at end-1H2024 that includes cash and cash equivalents of RM3.1 billion. The company has maintained a strong balance sheet with low leverage levels; its debt-to-equity ratio was a low 0.02x as at end-June 2024. The rating agency said it does not anticipate any significant increase in PDB's borrowings in the near-to-medium term, considering the company's moderate capex requirements of about RM400 million p.a. relative to its strong CFO generation.
