There are mistake on the dividend chart and history. The most recent dividend should be refer to fy2017 instead of 2018. There was dividend payment for fy2016 as well but not showing correctly in the dividend chart and history.

Maintain SELL and MYR5.60 TP, 25% downside with 2% FY19F yield. Petron Malaysia’s FY18 core earnings came below our expectations due to weak refining margins, especially soft gasoline margins that stemmed from the oversupply in the global market. We maintain our forecasts and TP, which is pegged to 9x FY19 P/E. Refining margins are expected to remain weak in 2019, hampered by a low gasoline product spread.

4Q18 results are below expectations. The company’s 4Q18 core loss of MYR81m took FY18 earnings to MYR177m, below our and Street estimates, at 55.8% and 55.9% of full-year projections. The major negative variance to our forecast was largely due to weaker-than-expected refining margins and volume of product sold. DPS for FY18 was at MYR0.20.

Weak margins coupled with weaker volume. Petron’s 4Q18 core loss of MYR81m, vs profit in 4Q17, was mainly due to lower sales volumes. This, in turn, was no thanks to maintenance works conducted at its Port Dickson refinery and lower refining margins, which were largely dragged by weak product prices (especially gasoline margins). In FY19, core profit plunged 58% YoY despite the revenue growth, due to weaker refining margins – mainly from the squeeze in gasoline margins amidst an oversupply.

Despite a recent weakness in oil prices, refining margins globally have declined significantly, with the Tapis Crude 211 crack spread (with product prices including a mix of gasoline and diesel) plunging to USD3.5/bbl, based on latest observations. We believe the major drag in margins was due to high gasoline inventory in the US and Singapore, as well as the increase in China’s export quota. We believe the situation will persist in 2019, with overall demand for refined products remaining similar while supply is likely to stay oversized.

No expansion in refining capacity in the near term. In early 2018, the group publicly stated that it was considering expanding its refining capacity by 90,000bpd – on top of the existing 80,000bpd capacity – at an estimated cost of USD3.5bn. In view of the weak 2019 refining margins, we do not expect this exercise to be rolled out over the next 1-2 years. This is a relief to us, as a significant near-term expansion in capacity might result in a higher overhang on Petron Malaysia’s earnings base, due to the expected weak market ahead. Nevertheless, continuous upgrading works would still be done on its existing refining facility in order for it to upgrade its gasoline products to Euro 5M by 2020 – in line with the Government’s target.

The top 3 countries in the world in terms of population are China, India and USA. But when it comes to the stock market performance, the number of people doesn’t count.

From the end of 2010 to 2023, the CAGR for their stock market indices were

• S&P 500 (US) – 10.8 %
• Nifty 50 (India) – 10.2 %
• SSE (China) – 0.4 %
• KLCI (Malaysia) – negative 0.3 %

You can see that the US stock market had one of the better growth rates. The common cited reasons for this are because it has better

• Global market integration
• Liquidity
• Political Stability and Regulatory Environment
• Market Maturity and Investor Sophistication.
• Financial Infrastructure

If you want the market to re-rate your stocks faster, shouldn’t you focus on stock in those countries with better track record of returns? You may argue that this applies if you are indexing.

But does this apply if you are a stock picker? For example, if you find that Petron Malaysia has more margins of safety than say the equivalents in the US or India, does this still apply?

Bursa Petron Malaysia is a refinery cum petrol station business. Many believes that electric vehicles would eventually disrupt the petrol station business. But I suspect that it is probable a decade away.

Does this mean that we should no consider investing in Petron Malaysia? Over the past 12 years, the company delivered an average return that was greater than its cost of funds. This is a financially sound company whose performance is affected by crude oil prices.

Taking the performance over the oil price cycle into account, I found that there is a sufficient margin of safety from both the Asset Value and Earnings Power Value.

Unless you have decades of investing horizon, I would think the is a counter worth a look

For more insights go to page 20 of Invest