Financial Management : Petronas Dagangan Bhd

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Financial Management

by ytinglim

(For your information, in this whole report, Petronas Dagangan Bhd, we will short it as PDB and

Petronas Gas Bhd as PGB) Question (a)

Background and Future Prospects of the selected Company

i) History

PDB is incorporated in 1982 and listed on the Main Board of Bursa of Bursa Malaysia in 1994. Notably,

PDB is also known as the principal domestic marketing arm of Petroliam Nasioanal Berhad

(PETRONAS) and Malaysia’s leading retailer and marketer of downstream oil and gas products. Today,

PDB is continuously strives to provide superior products, and further solidify this position.

PGB is initiated its business since the year 1983 as a wholly owned subsidiary of PETRONAS.

Remarkably, the reason of incorporate the company is due to the PETRONAS’s program regarding

development of facilities to enable the processing and transmission of gas supplied by the gas fields

offshore Terengganu to the whole of entire peninsula. As the business growth comprehensive, during

year 1998, PGB has expanded and diversified the business into manufacturing, supplying and marketing

of industrial utility products to customers in Kertih Integrated Petrochemical Complex and Gebeng

Industrial Area through its Centralised Utility Facilities Division (CUF). ii) Market Structure

Petronas dagangan berhad involved in the distribution and sale of fimished petroleum products and

operation of service stations for the domestic market.tha comapany’s market share stands at about

43.5% sustaining its market leadership in the country.petronas gas berhad involved in the provision of

gas processing and transmission services to petronas and its customers as a throughput company The

petronas dagangan berhad registered higher profit before tax of RM1046 million compared to RM810.3

million last year, while earnings per share rose to 75.8 sen. The business performance include retail

business, market share around 32%, beside this, the commercial business has continued to maintain its

market share at 64% in the sales of industrial products. The liquefied petroleum gas (LPG) business has

expanded its market share at 52%. The petronas gas berhad profit after tax increased from RM928.0

million last year to RM940.7 million. The company’s gas processing plants operation by the plant

operation division in kertih and paka also embarked on plant rejuvenation and revamp ensure that the

plans integrity can be sustained for another 20 years of operation. The company achieved a major

milestone by venturing into the independent power producing business through its subsidiary, Kimanis

power Sdn Bhd.

iii) Growth Potential

Petronas Dagangan Berhad and Petronas Gas Berhad both are fossil and fuel companies. Both

companies are making big money in this field , however the reserve of oil and gas is running low, the

prosperity can’t last forever if they rely on oil and gas wholly. Petronas Dagangan Berhad and Petronas

can look for alternative source of energy to substitute oil and gas. Microalgae fuel (can also call

biodiesel) will be one of the ideal alternatives to this, however further study will be needed to make this

really cost effective and profitable. Competitiveness

Petronas Dagangan Berhad and Petronas Gas Berhad are subsidiary company of Petronas Berhad, so

they are run their business by separately. In financial statement, profit before tax of Petronas Dagangan

Berhad from 2006 to 2010 are RM724.6 mil (2006), RM903.2 mil (2007), RM908.4 million (2008),

RM810.3 (2009), RM1046 (2010). Furthermore, the figure shows the profit before tax of Petronas Gas

Berhad are RM1024.9 mil (2006), RM1233.1 mil (2007), RM1366 million (2008), RM1241.1 (2009),

RM1238.3 (2010) within 5 years. Compare to the Petronas Dagangan Berhad, Petronas Gas Berhad

perform better than Petronas Dagangan Berhad.

iv) Risk

Firstly, the recent domino effect that happened in Arabic nations has influenced the production, leads to

instability of the market. The second risk is economic risk which includes demand and supply shock

which may cause price volatility and global recession. The third risk is environmental concern. Consumer

is beginning to be aware of the effect of the industry to the environment and advocate energy

conservation by switching away from oil which may depress its future potential. The fourth risk is cost

control issue. Inability to control cost may undermine the competitiveness of the industry. This problem

may extend from exploration all the way through the value chain, impacting everything from refinery to

pipeline construction.

Question (b)

Background of both listed companies in the industry

i) Track record

PDB’s leadership position in the Malaysian retail and marketing of downstream oil and gas products

provides a robust foundation for the Company to achieve its Vision to become Malaysia’s “Brand of 1st

Choice” for petroleum products. Importantly, the Company nurtures the core expertise of its 1,700

dedicated employees across the country, as part of its commitment as a responsible corporate citizen to

play its part in Malaysia’s nation-building and growth agenda. PGB was awarded “2009 National OSH

Excellence Award” for Gas Utilities category. PGB was also recognized by Malaysian Society of

Occupational Safety and Health with eight awards. At PETRONAS level, PGB once again received the

Merit Award in Sustainability Development category for its success in conducting ‘Knowing TOD’

programme.PGB won the National Annual Corporate Report Award 2010 for Best Annual Report in the

Industrial Products and Technology category.

ii) Advantages of product

In PDB, PETRONAS PRIMAX 3 is the third generation fuel that contains SINAR G-05, a unique additive

that is capable of cleaning and boosting engine performance, giving greater power and fuel efficiency.

SINAR G-05 has been extensively tested in laboratories in Malaysia, US and Europe and is proven to

remove even the most stubborn deposits inside the engine and gives maximum engine protection. PGB

maintains reliability in its plant operations at world class standards. For ethane, plant reliability was

98.8%, while plant reliability for propane and butane was at 98.7%, collectively at world class level. The

Company’s product delivery reliability via its GPPs also recorded convincing numbers with propane and

butane registering 100% respectively for the year in review. Both propane and butane recorded 98.7%

product delivery reliability in the previous financial year. iii) Growth potential

In PDB, the market for petroleum products is highly competitive. But, PDB’s products have enjoyed high

market acceptance and customer confidence, as evidenced by its rapid sales growth over the years.

PDB markets its products throughout the country, directly to customers as well as through its network of

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Financial Management by ytinglim (For your information, in this whole report, Petronas Dagangan Bhd, we will short it as PDB and Petronas Gas Bhd as PGB) Question (a) Background and Future Prospects of the selected Company i) History PDB is incorporated in 1982 and listed on the Main Board of Bursa of Bursa Malaysia in 1994. Notably, PDB is also known as the principal domestic marketing arm of Petroliam Nasioanal Berhad (PETRONAS) and Malaysia's leading retailer and marketer of downstream oil and gas products. Today, PDB is continuously strives to provide superior products, and further solidify this position. PGB is initiated its business since the year 1983 as a wholly owned subsidiary of PETRONAS. Remarkably, the reason of incorporate the company is due to the PETRONAS's program regarding development of facilities to enable the processing and transmission of gas supplied by the gas fields offshore Terengganu to the whole of entire peninsula. As the business growth comprehensive, during year 1998, PGB has expanded and diversified the business into manufacturing, supplying and marketing of industrial utility products to customers in Kertih Integrated Petrochemical Complex and Gebeng Industrial Area through its Centralised Utility Facilities Division (CUF). ii) Market Structure Petronas dagangan berhad involved in the distribution and sale of fimished petroleum products and operation of service stations for the domestic market.tha comapany's market share stands at about 43 ...
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