MARC has affirmed its MARC-1IS/AAAIS ratings on PETRONAS Dagangan Berhad’s (PDB) Islamic Commercial Papers (ICP) and Islamic Medium-Term Notes (IMTN) Programmes of up to RM2.0 billion. The ratings outlook is stable. There is currently no amount outstanding under the rated programmes, which will expire in March 2021.
The ratings incorporate PDB’s strong domestic market position in trading petroleum products, its strong liquidity and conservative capital structure. Based on the strong relationship between parent Petroliam Nasional Berhad (PETRONAS) and PDB, exemplified by a shared common brand and substantial operational links, the latter’s ratings are equalised to PETRONAS’ AAA/MARC-1/Stable ratings (based on public information). PDB is the principal domestic marketing arm of PETRONAS for downstream oil and gas products.
PDB’s financial profile was hit by a sharp decline in fuel demand in the wake of the COVID-19 pandemic. Its revenue declined by 36.4% y-o-y to RM14.3 billion in 9M2020 as sales volume suffered due to travel restrictions imposed to combat the spread of COVID-19 as well as from an 18% decline in the average selling price of oil which fell sharply during the period. PDB’s commercial segment was the most affected segment as demand for aviation fuel slumped. Since the relaxation of movement restrictions in June 2020, demand for retail fuel has risen but not for aviation fuel which is expected to remain subdued until global air travel recovers.
MARC notes a significant mismatch between the purchasing and selling prices of fuel products in PDB’s retail segment during 1Q2020, caused by a declining trend in the retail segment’s reference fuel price, the Mean of Platts Singapore (MOPS). As a result, the retail segment reported a loss during the first quarter. As the MOPS improved in 2Q2020 and 3Q2020, the retail segment’s profit rebounded and offset the loss in 1Q2020. PDB recorded a 71.1% y-o-y decline in pre-tax profit to RM271.0 million mainly due to a significant decline in both sales volume and prices. MARC views the decline in profit will not materially affect PDB’s overall credit profile given its very strong capital structure and liquidity; leverage level of PDB stood at 0.03x while cash balances stood at RM2.6 billion as at end-September 2020. Capex requirement remains low and can be met by internally generated funds.
The stable outlook reflects MARC’s expectation that PDB will broadly maintain its business and financial profile over the near term, underpinned by a healthy balance sheet.