I’ve been holding Petronas Dagangan Bhd (PETDAG) shares for a few years now. PETDAG has been a stable performer in my portfolio. While it has not shot up as much as other Bursa Malaysia blue chip stocks over the last year, it also didn’t drop as much during the October 2008 market crash.
Seeing that it is going ex-dividend in early August, I decided to buy a few more shares. Much of Petronas Dagangan business is captive business. I believe it has a strong defensive “moat”, the type that Warren Buffett would be pleased with.
In recent times, EPF has been dumping PETDAG shares (perhaps to create more liquidity as part of Bursa Malaysia plan to attract more foreign investment), but the stock is still pretty strong at around RM9.60. And there is a 45 sen dividend coming up soon. So here are some other reasons I bought the stock
- Track record of consistent & increasing dividends .
- It is a classic “Stalwart” type of stock in the definition of Peter Lynch. At current PE levels, it is relatively cheap compared to other Stalwarts on Bursa Malaysia.
- Intrinsic Value of more than RM13.50 as at Jul-10 (using 10% EPS growth, 60% Dividend Payout ratio, 10% discount rate and 12x Terminal PER).
- Its share price has not really kept up with earnings growth over the years.
Petronas Dagangan is one of those cash cows that doesn’t hoard its cash. Dividend payout has been decent, with 45sen dividend for FY ended 2008 and 2009. For FY2010, it is 45sen plus 15sen Special Dividend. With PETDAG’s strong cash flow, I suspect the Special Dividend may well continue into the future.
On the earnings side, EBIT has travelled from the RM200-300 million level to RM1 billion level in a span of 7 years with no dilution to shareholders.
There are specific transfer pricing arrangements between Petronas and PETDAG although the formula is not widely known (not to me anyway) but EBIT Margin would usually come in at 4-5%.
But overall PETDAG earnings are quite predictable and I believe Petronas will continue to look after its cash cow for years to come.
Tags: Bursa Malaysia, petdag, petronas dagangan, petronas dagangan berhad