Barefoot Investor: Malaysia market: Petronas Dagangan looks overseas

Petronas Dagangan Bhd, the best-performing stock in Malaysia’s benchmark index this year, plans to extend its reach in Southeast Asia after making its first overseas venture into Indonesia.

The retail arm of Malaysia’s state oil and gas group Petroliam Nasional Bhd is “always looking for acquisitions,” and is particularly interested in the oil and gas product markets in the Philippines and Thailand, Chief Executive Officer Amir Hamzah Azizan said August 19 in an interview in Kuala Lumpur.

Expanding abroad will generate growth beyond Petronas Dagangan’s home market where it has supplies 51 per cent of the nation’s liquefied petroleum gas according to its 2011 annual report. The company had cash of more than RM900 million (US$302 million) at the end of June.

“We need to start laying seeds,” Amir said. “At some point, we will top out. When you top out, then you sit on earning whatever the normal demand growth is in the country.”

Petronas Dagangan closed unchanged at RM17.40 in Kuala Lumpur on Aug. 19, bringing its total gain this year to 49 per cent. It is the best performer in the benchmark FTSE Bursa Malaysia KLCI Index, which has dropped 2.3 per cent. Over the past year, its shares have risen 66 per cent.

The company wouldn’t rule out the possibility of acquiring sister company PT Petronas Niaga Indonesia, which runs 19 petrol stations in the most-populated nation in Southeast Asia.

“If we believe that a combined entity is better than two stand-alone, I’m sure we will do it,” Amir said without giving a time frame.

Profit Growth

Petronas Dagangan posted net income of RM869.7 million for the year ended March 31, 16 per cent more than a year earlier. Over a five-year period, its earnings grew at a compounded annual growth rate of 6.3 per cent, according to Bloomberg calculations.

Petronas Dagangan, which also supplies 60 per cent of commercial demand for petroleum products in Malaysia and is second only to Royal Dutch Shell Plc in the lubricant market, has started selling its products in Indonesia to Petronas Niaga Indonesia, which is wholly owned by Petroliam Nasional, better known as Petronas.

“Indonesia is a big market,” said Amir. “We have just scratched the surface of it. I am hopeful that we can get a bit more growth on the volume.”

Dividend Policy

Petronas Dagangan, set up in 1982, now has more than 960 petrol stations in Malaysia, he said, adding that it will add 30 more by the end of this year. It aims to increase its market share to 40 per cent from 32 per cent in the retail segment, and to 28 per cent from 22 per cent in the lubricant segment, over the next five years, he said.

The company’s newly introduced dividend policy of paying about 55 per cent of its profits as bonus to shareholders on a quarterly basis is “sustainable” in view of its growth prospects, Amir said.

“Because the returns are sustainable and fairly predictable, that’s no reason why I would need to wait until the end of the year to declare dividends,” he said.(Bloomberg)


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