Shareholders of Petron Malaysia Refining & Marketing Bhd have been smiling. The crude oil refiner achieved a record-high net profit and declared a record dividend. In addition, the share price has surged to an all-time high.
Its net profit of RM405.2 million in its financial year ended Dec 31, 2017 (FY2017), was a 70.6% year-on-year jump, supported by stronger oil prices and higher sales volume, which drove full-year revenue up 36% year on year to RM10.4 billion.
The strong financial performance was fuelled by record sales with an increase in total volume to 34.9 million barrels — 9% higher than in FY2016. This translated into 96,000 barrels per day in FY2017 compared with 88,000 barrels in FY2016 and 83,000 barrels in FY2015, demonstrating an upward trend in sales volume over the three financial years in review.
Petron delivered a stellar set of earnings figures from FY2015 to FY2017 after posting losses in FY2013 and FY2014.
The group, which also operates a petrol station chain in the country, recovered from a net loss of RM64 million in FY2014 to a net profit of RM405.2 million in FY2017, thanks to a one-off gain of RM65.6 million. The group’s earnings per share jumped to 150.1 sen in FY2017 compared with 88 sen in FY2016 and 20 sen in FY2015.
Attracted by the improved earnings performance, investors grabbed Petron’s shares, leading to a rally in the share price to record highs from May 2017.
In the awards evaluation period, Petron’s share price soared 182% from RM2.57 on June 30, 2015, to RM7.25 at end-June 2018, representing a three-year compound annual growth rate of 41.3%.
The strong earnings enabled the group to reward shareholders with more generous dividends. The company declared a dividend per share of 25 sen (the highest in 20 years) in FY2017, 22 sen in FY2016 and 20 sen in FY2015.
The stronger oil prices initially benefited Petron because it caused a widening of the motor gas (mogas) crack spread, which is the difference between crude oil prices and refined petroleum products.
However, the crack spread started to narrow this year and feedstock costs went up.
For the first nine months of FY2018, Petron’s net profit declined 18.2% to RM250.09 million, although revenue over the period grew 21.5% to RM9.15 billion.
Petron said it expects price volatility to continue due to several factors, such as geopolitical tensions and trade wars that may affect oil supply and demand.
“The company will maintain its service station network expansion programme to cater for its growing customer base and upgrade its refinery and distribution facilities to support the increasing requirements,” it said.
RHB Research analyst Lim Sin Kiat is optimistic about Petron’s prospects, reiterating a “buy” call on the stock with a target price of RM9.50.
“We don’t discount the possibility of stronger-than-expected earnings in the second half of 2018 due to sustained strong sales volume growth, which would be a positive catalyst,” Lim wrote in a report after the group announced its financial figures for the second quarter ended June.
It is also worth noting that the price of oil has been on a downward trend, falling 20% to US$68.71 per barrel on Nov 13, 2018, from a three-year high of US$86.29 in early October this year, which may lower feedstock costs.
However, the Singapore mogas ICE Brent crack spread has dipped in and out of negative territory since early November this year.
Just how these factors will affect Petron remains to be seen but the refiner certainly enjoyed a highly profitable FY2017.