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Posted Date: March 25, 2020

MARC has affirmed its MARC-1IS /AAAIS ratings on PETRONAS Dagangan Berhad's (PDB) Islamic Commercial Papers (ICP) and Islamic Medium-Term Notes (IMTN) Programme of up to RM2.0 billion with a stable outlook.

The ratings reflect PDB's leading market position in the domestic downstream petroleum products segment and its healthy financial metrics, particularly strong liquidity and a conservative capital structure. PDB's ratings also consider the high level of parental support from Petroliam Nasional Berhad (PETRONAS).

The stable outlook reflects MARC's expectation that PDB will be able to withstand the impact from the ongoing coronavirus (COVID-19) outbreak given its strong financial profile. PDB's strong cash balance of RM3.4 billion as at end-2019 provides a short-term liquidity buffer against any declining fuel demand. Depending on the duration of the outbreak, PDB's near-term performance could be weighed down by the restrictions on travelling and reduced economic activities; nonetheless, MARC does not expect this crisis to dent PDB's credit profile. The stable outlook also incorporates PDB's very low debt obligations with a debt-to-equity (DE) ratio of 0.06x.

PDB has continued to improve its services, including the upgrade of its convenience stores and launch of new fuel products. It also added eight new petrol stations last year to an extensive network of more than 1,000 petrol stations across the country. Total group revenue rose by 0.7% y-o-y to RM30.3 billion in 2019 on the back of a 5% growth in sales volume but moderated by a 4% decline in average sale price. Pre-tax profit was lower by 4.1% y-o-y to RM1.1 billion on higher operating expenses.

Cash flow from operations (CFO) rose sharply to RM2.4 billion in 2019 mainly on the receipt of a large subsidy payment from the government and, to a lesser extent, due to timing differences on payments to suppliers. PDB would be able to achieve better CFO stability if the targeted fuel subsidy scheme is implemented as the selling price would be set at the market rate instead of receiving a proportion of earnings as government subsidy receivables when the market rate exceeds the selling price cap. The fuel subsidy scheme was to be implemented in January 2020 but has since been postponed. PDB's conservative capital structure provides substantial headroom for borrowings if required without compromising its credit metrics.

Contacts:
Chia Kah Yie, +603-2717 2961/ kahyie@marc.com.my;
Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my

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