Highlights

• 1H26 core profit is above expectations, with annualised margin/litre of 8 sen superior to the 5 sen fixed under the APM. The commercial segment recorded substantial profit gains, benefitting from a steeper product price downtrend vs 2022 (substantial gain was recognised only in 4Q22). We also deduced that PETD temporarily gained some market share to compensate for loss volumes from peers, as the main goal is to safeguard the nation’s fuel security. These more than offset weak commercial volumes. We observe no major cash flow risk, and continue to like PetDag’s defensive proposition and its important role as the nation’s domestic fuel anchor. Retain BUY with target price rolled over to RM24.20.
   

Analysis

• 1H26 profit above expectations, comprising 61%/58% of our/consensus forecasts respectively, and the implied annualised margin of 8 sen/litre is far superior vs OilCo’s margin of 5 sen as per Automatic Pricing Mechanism (APM). We earlier expected commercial earnings to mirror the trend during Russia-Ukraine crisis, when the jet fuel price downtrend extended throughout 2022 and Petronas Dagangan (PetDag) recognised a substantial profit gain in 4Q22. The jet fuel price downtrend from the US$200/bbl peak in Mar 26 was much steeper and occurred early in 2Q26 itself.
   

• Price trends more than offset weaker volumes. The 6% contraction in 2Q26 commercial volume was primarily due to jet fuel, in tandem with lower flight frequency. Fortunately, retail volumes were strong from diesel and Mogas, boosted by the successful integration of the BUDI95 subsidy with the Setel app. The app, which offers convenience to pay for fuel directly from the car seat, has seen its userbase expand by 31% from 8m in early-25 to 11m by end-25.