PETRONAS Dagangan Berhad (OTCPK:PNADF) Q2 2022 Earnings Conference Call August 22, 2022 10:00 PM ET
Company Participants
Liza Mustapha – Executive Vice President and Group Chief Financial Officer
Khalil Muri – Head of Retail Business
Conference Call Participants
Operator
Ladies and gentlemen, may I have your attention. The briefing is about to begin. [Operator Instructions] Allow me to run through the housekeeping guidelines for PETRONAS. So first, we kindly request that you switch off your headphone to silent mode. Second, recording and/ or screen capturing any part of the info during the session using your electronic device is strictly prohibited. Lastly, we will only take questions at the end of our presentation.
[Foreign Language]Good morning and welcome to PETRONAS Dagangan Berhad Analyst Briefing. My name is [Inaudible], PNADF’s Investor Relations Manager and I will be your MC for today. On behalf of PETRONAS Dagangan Berhad, we would like to thank you, everyone for attending today’s briefing on PETRONAS Dagangan Berhad financial results for quarter two FY2022. Together with us today, Puan Liza Mustapha, PNADF’s CFO and Sheikh Khalil Muri, PNADF’s Head of Retail Business. Today’s briefing will be jointly led by both Puan Liza and Sheikh Khalil as [Inaudible] VP and CEO is currently away. So today’s agenda, we will begin the session with welcoming remarks. Key highlights quarter two FY2022 financial results and focus areas which will be jointly presented by Puan Liza Mustapha and Sheikh Khalil.
Ladies and gentlemen, we would like to start this session by first sharing an exciting video, Mesra. [Video Played]
Without further ado, I would like to now invite Puan Liza Mustapha and together to join her Khalil to deliver the presentation, over to you, Khalil.
Khalil Muri
Good morning, [Foreign Language], ladies and gentlemen. I’ll be taking you through the operating environment for Q2. And there’s two key messages to be delivered here. Firstly is on Brent crude. As you can see from the chart, it traded range bound between USD 98.5 per barrel to USD 123.6 per barrel. And this is predominantly due to the unsettling conflict in Eastern Europe. We saw a lot of ups and downs. And we averaged out the quarter at about US $112 a barrel compared to previous quarter of $102 per barrel. The upward trend for oil price year-to-date is mainly due to geopolitics. But I’ll tell you a little bit more about our outlook for a second half in the later part of the presentation. Domestically, we saw economic measures recover. Exports grew and FDI also, exports grew by about 40% year-on-year to about MYR146 billion, while imports actually soared 49.3% MYR124 billion. This is on the back of higher commodity prices globally. Wholesale, and retail trade sales also recorded better performance rising about 20%. While, manufacturing sales increased by about 16% in May this year.
Domestic demand continued to improve with the ease of containment during MCO. We opened up our borders as well, and the Malaysian economy registered positive growth of about 9% in the second quarter. However, I mean, MIER, consumer sentiment index dropped below the 100 point threshold to a four quarter low of 86 as more inflation in the M 40, and D 40 lost confidence due to inflationary pressures. Over to you, Mustapha.
Liza Mustapha
Thank you very much, Khalil. That sets the tone of what has happened to us in the quarter two. And perhaps I can give a bit more of context from the financial performance for quarter two to all the analysts today. So we’ll start with the volume. As you can see, it was a strong improvement against all dimensions for the SPLY in the preceding quarter, and also for the year-to-date. And specifically for retail, we know that the main product being Mogas and diesel that has also contributed to increase of the volume as a result of the opening of the movement between the states. And at the same time an ample, the activity during the festive seasons being Hari Raya and a few other festivities in the quarter.
For the commercial, also, the contribution is due to the opening of the international borders. So the incoming flight has significantly increased to our country. And that has also resulted to a significant increase of the volume, especially on the Jet A1 and contributed to improvement of a commercial volume. For the rest, they are all going through the opening out of the activities. And we hope that this trend will continue for the next quarters also. So let’s go to the next one.
Going into the financials. As you can see, revenue is also increased against automation on the quarters and also for the year-to-date. And that’s also contributed by both the volume and also the movement of price. So we saw that the product prices and also rallying together with the Brent crude prices has improved significantly over the time and particularly against the SPLY. So both volume and the average selling price per liter has also has helped in terms of improving the overall revenue. In terms of the profit before tax is a resultant of the increase of the gross profit which I can share in the next slide as well. But the margin has improved as a result of the both function of volume and price. And we can see also it’s correspondingly increase for the OpEx due to the volume link as result of the opening of activities and also economies for the quarter.
And similarly, you can see on the year-to-date because it’s accumulated opening accumulate the performance for the quarter one and quarter two, which we see today has improved against year-to-date 2021. On EBITDA, we also see the same trend. The match is very much strong against both preceding quarter and also quarter two, take into account everything else except the interest depreciation and amortization. And that has contributed to strong performance or strong closure for the quarter two against other dimensions as well. On the gross profit, as I mentioned to you just now we recorded higher gross profit against all dimensions as contributed to higher PBT as explained earlier is going back to the function of the volume and also the contribution of the price that has resulted to a strong margin or strength, strong gross profit for the quarter also for the year to date, and that has significantly also impacted our OpEx, the volume link particularly has correspondingly increased together with the volume related OpEx notwithstanding our fixed OpEx still remain as we are gradually completing for the year OpEx performance.
On other income one significant event that we registered for the quarter is the completion of our disposal of our LPG business in Sarawak. And with that, we have recorded a gain in the quarter two of MYR80 million and that has also been contributed to the overall performance of other income. And other than that, it’s also correspondingly with other volume increased together with hospitality income that we have also registered for the performance of the quarter due to the increase of the demand on the opening up other activities.
Volume by business so, all segments, except for lubricant and LPG, you can see there are slight downward as compared to the dimensions of the quarter. And that’s really an anomaly for the two separate industries, but on the retail and commercial is a function of the contribution by the volume by the opening of activities that has saw a strong demand and also improvement of the corresponding volume. There are slight impact of the LPG against the preceding quarter due to the disposal of our business, LPG in Sarawak. However, having said that, at the end of the day, we are still moving forward with regard to the expansion of our other businesses of LPG with retaining the market and also getting the customer to sign up on LPG.
For the lubricant, there are still strong competition we know that against the industry, there are many competitors and amongst that is the contributor to the lower volume for the lubricants and that sets up the overall volume for the respective segments. On the gross profit, I’m happy to also share the corresponding result into the retail and the commercial, which has been made due to the both function of the volume and the price due to opening of the activities and LPG margin also lubricant is resultant also based on the performance that we have registered in quarter two on the competitions and also disposal of the business. For the LTV what we can see is against SPLY, we saw that there was favorable CP prices which registered at 46% improvement on the GP. However, for the quarter two in addition to the disposal of the FD business against quarter one, we saw that of the decrease of the CP prices has also impacted over LPG was on the lubricant in addition to the competition as also the product mix and also the fact that they are also in increase at the raw material which further impact the overall gross profit for lubricant. And that’s we see against quarter two in 2022 for the lubricant business.
For the convenience, we happy to record a better performance against SPLY due to significant difference of economic environment against quarter one, against quarter two last year and this year, but against quarter one, we saw this reduction that’s mainly because of the introduction of also our new business, our delivery business which just starting and in the progress of scaling up, there are still some costs that we need to incur and assess to lower slightly lower against the quarter one 2022.
On the balance sheet, on the financial position, we can significant increase on the total assets increased more than 80%. One of it is contributed by the cash and cash equivalents which has — up to 39% against – December, 2021. There’s also other element in the total assets including our receivables and also our other components, which has resulted due to the increase of the total assets of more than up to 80%. On — it could — shareholders of the companies slight marginal increase of 1% is resulted to the improvement of the overall assets and liabilities.
We wrapped up for the quarter and has declared a dividend of MYR0.11 per share, as announced yesterday, is a commitment that PDB, PNADF has given to our shareholder that we are meeting at least the dividend payout of 50% to our shareholders, we will remain cautious on the outlook for the quarter and for the following years for the year and we hope that the stronger performance will support the overall – of future dividends hopefully.
Okay, so that’s the overall financial performance for the quarter. And for the next item is the quarterly highlights. Maybe I can pass back to Khalil.
Khalil Muri
Thanks Liza. So just share some promotional highlights. We saw borders open in Q2, so we saw a flurry of activity around festive seasons, we continued our assessments and thematic campaigns for our Primax 95 with Pro-drive. As you all know, all the diesel in our stations is now Euro 5. So that’s something we want to highlight to the market. In addition to that, we had campaigns for our customers around the festive season, and what I wish to highlight would be our Ramadan Raya campaign was to increase footfall at our stations, increased repeat purchases of fuel and non-fuel. We also tied up with our loyalty partner, AirAsia to promote more cross conversions between customers of AirAsia and our own Mesra loyalty program. And this is designed to really give back to our Mesra customers or our Mesra loyalty program customers.
On a sustainability front, in line with road safety, non-previous one, yes, in line with road safety and [Inaudible] do basically promoting travelers to drive safe, take a break and rest. We have our signature program which is a Coffee Break during Hari Raya Aidilfitri. Okay, next slide. We continued our tradition through Ramadan with [booboo, Lombok] summer guests PETRONAS, this is something that we do every year. And we’re very happy to be able to do this again in 2022. The event was supported by volunteers, would have timed out a dish and it was booboo that we distributed to more than 100,000 people throughout the period.
In conjunction with World Environment Day, as you can see number two there, Malaysia airlines flew its first passenger flight with sustainable aviation fuel, and that was on the fifth of June. This was a flight from Canada, Singapore it was MH 603 and this is with what we call SAF supplied by PETRONAS is produced from 100% renewable materials. And it’s in line with Berhad focus to support sustainability. This will now be available at KLI, and we look forward to long-term supply to our aviation customers who also want to support their own sustainability agendas. This is part of PETRONAS’ group’s greater commitment to net carbon zero to net zero carbon emission targets by 2050. So this is one way that PDB wants to support sustainability and our other agendas along that.
Lastly, under number three, the Malaysian Open is now named the Petronas Malaysian Open. This was held from the 28th of June to the 3rd of July, we’re very proud to be one of the title sponsors. And this was something that we did at the Malaysian Open to promote our other products such as our PETRONAS shop, which provides merchandise for motorsports enthusiasts and also for balance events. We also look at other products we also showcase our other products, lubricants retail and also Setel.
Okay. So as I said earlier, I wanted to share some outlook with you for the rest of 2022. And there’s two angles here. One is really on inflationary pressures and the other one is on oil price volatility. Excuse me. So we still see price pressure from the ongoing conflict in Ukraine. And we also see B&M increasing the OPR by 25 bps to 2.25% from to 2%. With the increase in OPR, we could see some tightened consumer spending due to lesser low disposable incomes and moving forward, B&M will continue to observe the outlook on domestic inflation in order to support our economic recovery after COVID.
On the price outlook, we do see Brent crude oil trending downwards. Today’s Brent crude trade is trading at around $100 a barrel compared to a previous quarter of $123 was the high. We started, we think a lot of this is also going to be due to decrease in demand, we see global inflationary pressures. So we do see a downward trend in Brent. However, how PD Berhad intends tackle a lot of this is to continue to diversify our portfolio in nonfuel, particularly through Mesra retail. We remain cautious in our outlook. And we also continue to support the energy transition in Malaysia as part of our net zero carbon emission target by 2050. We are opening up more EV charging points with PETRONAS. And we will have five new EV stations in collaboration with Mercedes Benz and EV connection. And this will be DC chargers which are fast chargers. How we are enabling this is via Setel, Setel will be our seamless customer experience digital app, and it’s expanding its offer from fields to also TV. So we continue to be cautious. But we also want to diversify our portfolio. Right. Thank you.
Unidentified Company Representative
Thank you from Liza Mustapha and Sheikh Khalil. In the next minute, we will open the floor for questions. [Operator Instructions]
Question-and-Answer Session
Operator
[Operator Instructions]
Hi, Raymond, we have Raymond here. Hi, Raymond.
Unidentified Analyst
Hi, Good morning. So thank you very much for the call. So my first question is on the dividends. So in the first half of the year, you declared a total dividend of MYR0.16, and that compares to last year’s MYR0.24. Why are you paying a lower absolute dividend whereas your profits are higher than last year?
Liza Mustapha
I think so one reason for anything beyond payment of dividends definitely will take into account the future requirements of the company. And that includes whatever the forecast that we are seeing in the next couple of six months or so, so that we can be able to support the business operations. And that’s the one, in addition to profit, I think cash is also another function that we need to be — that we need to consider in managing our dividend payout. Having said that, I think we are committed to continue to go and honor the 50% dividend payout that we have as part of our policy. So, we will continue I think at the end of the day, we always have this overview or the review of overall year performance because we [Inaudible] for any additional higher dividend in the future, Raymond.
Unidentified Analyst
Okay, so, Mustapha, the since your capex is virtually very minimal, I presume the cash requirements you’re talking about relates to the delay in the payment of the subsidy by the government. Am I right to say that.
Liza Mustapha
So that is also one of the contributor which you can see as part of our receivable. There has been increased of the receivables in the account. So I think that’s part of the cash management that we need to be prudent in looking at overall outlook when we declare the dividend as well.
Unidentified Analyst
And is the government is taking longer than usual to repay the subsidies.
Liza Mustapha
At this juncture, yes, there has been a delay. And that has resulted to that higher receivable in the books. Having said that the commitment with the government is the ongoing engagement that we’re doing. It has been always positive. And it’s a matter of timing. As far as our relationship is concerned, we know that the government has always been a good paymaster. And any delay of the subsidy — any of payment due from them is going to be monitored closely. And hopefully the close working arrangement will help us to minimize any further impact on the delay of the subsidy.
Unidentified Analyst
Okay. So typically, the government takes about one month to pay you back. How long is the delay right now?
Liza Mustapha
It is about two months, three months, typically about one to two months. So here, I think they are already half of the subsidy is kind of like overdue or rather is delay in that sense that they’re supposed to be paid to PD Berhad.
Unidentified Analyst
So the government now owes you how many months, three months, six months?
Liza Mustapha
Is — I can’t really put the total number but it’s already half. But it’s part of the monitoring that we are doing together with the government on the deferment — on the reimbursement of the subsidy. I think the key message here was that is still ongoing. The continuous engagement that we have done with the government has always been positive. It’s a matter of a temporary effect that we are seeing today. The relationship that we have with them, as I mentioned to you, they has always been a good paymaster, we have this kind of situation in the past if you recall.
Unidentified Analyst
Plus because I can see that you have delayed your payment to PETRONAS as well for the fuel that you buy from — so, if we can match the delay, in terms of the government paying you with the delay that you are paying PETRONAS, you can actually neutralize the operating cash outflow. Can you?
Liza Mustapha
Correct.
Unidentified Analyst
Because right now there is a — there was a cash outflow in the second quarter. But what you find from that a little bit, so that whatever delay the government is paying you, you can take that out from PETRONAS’ account. So indeed is PETRONAS you’re holding co that is bearing the subsidy burden, rather than you because looking at the recovery of the profits, or not to pay a lower dividend compared to last year is actually very disappointing to investors. There’s really no justification, I believe looking at the amount of cash you can have, and the fact that you can actually manage this by delaying your repayment to your suppliers, mainly PETRONAS, I don’t see a reason why you should be so critical in your dividend. It should be much higher than that. And I think the fear that we have is that by the end of the year, you’re actually going to pay less than what you paid for last year, when in fact, last year your performance was actually worse than this year. So I don’t see this as a very good signaling by PETRONAS.
Liza Mustapha
Okay, I think you put it very aptly just now that the arrangement today what we are doing is what you already said right in terms of managing the payable that we are — is due to PETRONAS and that is what already in place. At the end of the day what we need to ensure is as independent public listed company, there’s also an obligation that we need to make sure that we are responsible to our shareholder making sure that the company is on sustainable operations moving forward. Having said that —
Unidentified Analyst
You are sustainable, just last year difference.
Liza Mustapha
Sorry, so with that arrangement, I think is currently still intact. I’m not saying that we are not going to declare any future dividends. We will be looking forward as far as the economic recovery is [Inaudible], which will be coming naturally and that will be part of our continue monitoring of the future performance. And if you are seeing that, you’re forecasting already that by particular quarter for the performance will be even worse as far as the profitability is concerned. We are looking forward based on the opening of the industry itself, which can be on its own in supporting the business operation. I think to say that we are critical and whatnot, we are at this juncture looking at what are the scenarios that we need to consider moving forward. And that has not been something that we are compromising in the past nor in the future.
Unidentified Analyst
I don’t agree with you, with all due respect. Okay. But anyway, I think we should just move on. I think the one thing that surprised me was that the commercial side was still making losses in the second quarter. And you wrote in the quarterly report that is something to do with the fact that the MoPS price increased very fast. So why it isn’t possible for you to pass on the higher costs to your customers, is there a delay of some sort?
Liza Mustapha
No, there’s no delay and I explained earlier in last quarter as well, is again, and is the mismatch against the buying of the jet fuel against the price that we have to sell to our customer. And this is a formula based kind of pricing that is entered into a contract. And that is something that we kind of have an arrangement for a period of time, right? Again, this is something not shouldn’t be seen as one point of the period, what is intended to be is for us to look at it in totality for the whole year performance, where you can see that any upside, then that’s why we’ll be getting the gain out of that price movement.
Unidentified Analyst
Okay, so you basically contracted to surge in fuel and the price, which is lagging the spot price movement, and see in the third quarter, the spot prices for jet fuel have come down a lot. So can you most likely make a profit for the commercial segment in the third quarter?
Liza Mustapha
I think that’s where we are, again, like I just mentioned to you earlier, is the fundamentals of the business today that we need to be holding on, right. So when we know that the industry has opened, we know that there’s also function of price that is volatile to our business towards an extent, hence why when we look at the forecast moving forward, there are some reliability of the outlook that we need to count in. And again, it’s just meant for our forecast, and we know from today, from whatever the publication that you have, is going to be on a downward trend. And we hope that can reverse the situation where we are today. Khalil, you want to add on.
Khalil Muri
Sure, Raymond, a lot of these contracts are one year, two year, and three year contracts. So over a period of 12, 24 to 36 months, you’ll see the prices move up and down. So as we saw in Q1 and Q2, generally, the prices were on an upward trend, as they go down, then you start to get the reverse effect. So they need to be looked over, not a snapshot in time, but over the longer period of those contracts.
Unidentified Company Representative
Yes. So, can we have Umeng?
Unidentified Analyst
Hi, good morning, guys. Can you hear me?
Khalil Muri
Yes.
Liza Mustapha
Okay. Yes.
Unidentified Analyst
Hi, thanks for the call, consists of a lot of questions on the commercial side. Maybe I just want to relook at the question in different way, you know that you have managed to narrow your losses, versus the previous quarter. Even though during the second quarter, the prices were actually more volatile, especially the jet fuel side. So is it more of market conditions? Or because I remember last time you guided that you are going to play some mitigation plans? So or is it more due to those mitigation plans have been working? And can you share more of that it is deadlock? Yes.
Liza Mustapha
Okay, I’ll start and maybe Khalil add on as well from the business side, one is definitely again, riding on whatever the price movement as you can see, the movement is not as steep as what we saw in quarter one and in quarter two is — there is an increase, but it’s not as bad as how we see in quarter one. For example, there has an increase as high as 30% in quarter one versus an average of about 8% and 12% in quarter two. So that has actually soften the impact on in a way if you call the volatility of the price into the commercial business, particularly on the Jet A1 product.
Unidentified Analyst
The second quarter is the quarter where the Russia event happened, right. So the, I mean, if you look at the price charts for most of these products —
Liza Mustapha
Quarter one, is quarter one.
Unidentified Analyst
I mean, yes, and the quarter one that was most important to I think so [Inaudible] in quarter two was actually more severe. I think so but yet you managed to report a smaller loss in your commercial side. So I’m thinking whether is it more due to — you managed to handle the volatility better in the second quarter versus the first quarter? Or is it something else? Yeah.
Liza Mustapha
There’s nothing that very specific from, we continue to monitor the price volatility, also some planning of the supply as well. So those are amongst the things that we have looked in closer detail as compared to how that in is quarter one.
Unidentified Analyst
I see. And I know you mentioned about contracts that are long term and this and there so do you manage to say, renew some of those contracts during the quarter at better terms that protects you from adverse or volatile MoPS prices?
Liza Mustapha
Not many, I think there are still those that it’s not yet due, which we still need to honor as far as the agreement is concerned.
Unidentified Analyst
Okay. Got it. So, overall, should we still expect to see commercial to be on the loss position for second half or what must we see for second half outlook?
Liza Mustapha
I mean, guided by the price on the applications that we see today, as far as the outlook is concerned, it looks going — it looks like it’s going to be flattish, and it’s going to be on a lower range. That’s what we saw in the quarter one and quarter two. So, if I have the crystal ball to really say that is the true outcome of the price, then I would like to hold on that but that is again, the guidance that we have to be, Umeng.
Unidentified Analyst
Got it, in general trend to be the way it is flattish, or let’s say downtrend, then finally, [Inaudible] report a profit will be right. Yeah.
Liza Mustapha
Yes, exactly. I think that is the confident that we want to have this on the outlook.
Unidentified Analyst
Okay, got it. Okay, move on to my next segment. In terms of receivables, are you able to disclose the subsidiary receivables amount? I think earlier you mentioned half or something? Is that half of the MYR10 million? Yes.
Liza Mustapha
So on the receivable, there are two parts, right. One is the usual trade receivable or rather receivable that we have our customers. [Multiple Speakers] and the one as you can see the big jump is on the subsidy. So that alone, as you can see is close to about MYR7 billion is the amount that you can quickly roughly – yes.
Unidentified Analyst
So MYR10 million minus of the MYR2.4 billion that you disclose in your notes, the rest of them is, I can assume is subsidy is —
Liza Mustapha
If you add that as well but the majority of it can be contributed by the subsidy.
Unidentified Analyst
Okay. And in terms of the timing right of the payment as I saw in recent months, like, July, August is the daily timing still there? Because I think market prices or pressure has been –has softened recently. So has that improved also from the government side in terms of the payment or is still the same? Yes.
Liza Mustapha
Sorry, I didn’t get your question.
Unidentified Analyst
In recent months, let’s say up to July, August is the delay in terms of the subsidy payments, has it improved or is still same as what it was in the second quarter.
Liza Mustapha
It’s again, subsidy is what we have to accrue and require as part of our receivable month on month, at the end of the day is the matter of recovery of whatever is outstanding and is technically payable by the government. So whatever that is coming and is due, it will be part of the overall receivable that we will register and monitor, Umeng.
Unidentified Analyst
Okay, got it. I mean, to get understanding correct, you submit every end of the month, right, to the government and then – [Multiple Speaker]
Liza Mustapha
Correct, the same process repeat, yes, correct.
Unidentified Analyst
Okay, but I mean, it does have the recent months, no color or whether it has improved or worsened or [Inaudible] the thing came on government, the timing wise I mean.
Khalil Muri
Since Q2, Umeng, our focus would be on Q2 and come Q3 – what Q3 was like for us.
Unidentified Analyst
Okay. And can I assume the delay in the payment is across both the petrol and diesel subsidy right, or is it more petrol subsidy impact? How is that work? Is it a total subsidy level for all the products that are subsidized? The so called the delay, yes.
Liza Mustapha
Yes, so essentially whatever product is subjected to subsidy is the one that is going to be part of the overall receivable for the subsidy and PDB.
Unidentified Analyst
Okay. And the delay applies to all this subsidized product, it’s not like most of – PETRONAS or something like that.
Liza Mustapha
Yes.
Unidentified Analyst
Okay. And then I noticed that you have borrowed some loans this quarter, is that also to manage the working capital for the subsidies.
Liza Mustapha
Correct. I guess that’s always been a standby facility that we have in place. And in the event, there are situations that we need to utilize it. And that’s where we have in a way draw it for the purpose of our operating cash for the operations and to manage any shortfalls that we have for the quarter. And that is also maintain the current arrangement that we have, as far as deferment of our payables to PETRONAS as Raymond mentioned is now.
Unidentified Analyst
Can you remind us again, how much is the available line that you have for your banking facilities?
Liza Mustapha
See the accounts is, the amount drawn is about MYR600 million in the borrowings.
Unidentified Analyst
And the total maximum is allowable that you have is how much? Or how much can you draw out? Yes.
Liza Mustapha
The total, facility, the facility that we have is MYR700 million. So at least we have max, whatever that required to make sure that we can utilize it when is necessary.
Unidentified Analyst
Oh, you’ve messed up the line really is it? Oh, okay. But you can still borrow more, if you need to, is it –
Liza Mustapha
Of course, I think as far as PDB credit standing is concerned, we are AAA definitely any line we need to tap is something that we can explore as part of our own financial standing. Hence, the availability and opportunity is a matter of timing and as matter of when we want to lock-in the necessary borrowings. So, in the past, there has been a standby, and we know that as and when we require then is going to be available for us to tap immediately.
Unidentified Analyst
What is the maximum that you can borrow? If you can share before it hits your maximum allowable gearing level internally or something like that? Yes.
Liza Mustapha
I think that is something that we will continuously assess, Umeng, or not something that I’m privy to share immediately how much but it’s always a good capital structure management to have debt equity, at the end of the day, it’s just a matter of when you want to maximize that DE for any ongoing business, right because cost of [Inaudible] is always cheaper than most of equity. So I guess it’s a matter of having the right mix and knowing the purpose of any of the debt to be utilized at any point of time.
Unidentified Analyst
Okay, last question for me. I mean, last segment is the OpEx outlook for second half. I remember you shared earlier that you can control this for best partly also because you’re planning to support as well like, you’ve managed to transfer a lot of not just inventory, but some of the management of those things, distribution costs and everything, but with this inflationary impact, especially on freight costs on product tankers on trucks and everything, how should we see towards your margins towards the second half, is there biggest impact or are you able to offset any inflation impact entirely, yes, on distribution cost perspective? Yes.
Liza Mustapha
Okay. I think you will appreciate that our distribution cost is also linked to the volume that we supply right that we sell. So, at the end of the day, one is definitely on the increase of the volume will have a direct link to our OpEx particularly on the transportation and also on the distribution. Having said that, we already have a contract that we have entered and whatever the rate is applicable is the one that will be applied that links back to the volume that follow through the demand supply for Berhad.
Unidentified Analyst
Which is and my question looking at the long term rates right, until they are offering you – is it correct?
Liza Mustapha
Correct. And there has always been the mechanism that we have with our trust [Inaudible] with regard to the distribution costs.
Unidentified Analyst
Okay, I mean should we see like a lot of renewal upcoming for your transportation contracts that may be subject to price increases on the cost side, yes.
Khalil Muri
So in line with some other contracts that we have with our customers, these are also long-term contracts that are will be up for renewal but not within this short term.
Unidentified Company Representative
Thanks, Umeng. Next, we have Max. Max, are you ready with your question?
Unidentified Analyst
Yes. Hi, thanks for the call. May be just follow up in terms of the receivables, you did mention that the payment needs to be able to one month. Just to clarify, now the payments in terms of delay is about one and a half months, was it about two months? Just want to get a sense of that?
Liza Mustapha
Max, you’re from?
Unidentified Analyst
From Macquarie, sorry.
Liza Mustapha
Oh, Macquarie, okay. Right. Again, I can’t really make a specific representation of that, but the payment is always lagging by two months. So that is actually something that is already in place as far as the receivable or the timing is concerned. So with the additional amount that we are seeing today, that has totally has follow through impact to the overall receivable that you see in the accounts. So that is the outcome of the selling receivable from the subsidy.
Unidentified Analyst
All right. So maybe as the context when’s the last time, let’s say for example, like maybe by [Inaudible] in ’15 the oil prices were quite high. What was the longest lag in terms of payments of subsidies?
Liza Mustapha
I can’t recall those days to be honest, Max.
Unidentified Analyst
Okay. All right. Sure. Okay, it’s okay. Yes.
Liza Mustapha
But I know, but I know the fact that is really a temporary kind of nature, as far as the outstanding was concerned. And when the investment was made, it was fully paid. And it’s back to current. And I think I mean, with all the working with them in the past, we have never been in this kind of situation for the last many years, I think. And that has been on current based on our experience. So this is the time that we think we got the impact of the subsidy receivable longer than the two months.
Unidentified Analyst
Okay. All right. So I think the other thing is, I think in the first quarter, it looks, announcement you did mention that in terms of how much subsidies you received in 1Q is about MYR2 billion, I think the high purchases was about MYR4 billion, can you share with us what is the subsidies received in the second quarter, and also the purchases, where they can get a sense of the trend as well.
Liza Mustapha
You have roughly calculate the receivable and whatever the payables that we due to pay to our suppliers. So that is what we are tracking. And that’s again, going back to the volume and also the prices that is registered for the quarter. Moving forward, again, is something that we need to closely work together because there’s also continuous increase in the volume and a price that we can see whether it’s going to be in favorable to pay that.
Unidentified Analyst
Okay. All right, sure. I mean, the other thing that extends your payables has also increased quite substantially from I think MYR5 billion to about MYR10 billion. And I think mostly that’s basically extended on credit terms. How much of this is really on your expansion or credit terms to PETRONAS per se, yes, just want to get a sense of higher payables as well.
Liza Mustapha
Because you there’s a bit of noises behind from your voice. I couldn’t hear the last line.
Unidentified Analyst
Yes, because your payables increase as well, I think MYR5 billion to MYR10 billion, can you just explain on that? Is it because you managed to extend your payment credit terms with PETRONAS or the fact that — can just give a color on that.
Liza Mustapha
So it is the arrangement that we have as far as the credit term is concerned that we have with PETRONAS. So, today the arrangement is the credit term is extended and it has been approved as far as the arrangement between PETRONAS and Berhad is concerned. So, the amount that was due based on the purchases that we have made, that is the one that is part of the overall trade payables. Having said that, at the end of the day, if there’s cash to process that coming in that will definitely be part of our close monitoring of the payable that we need to pay back to PETRONAS assignment is due, so in agreement on the credit terms that we have in place today with PETRONAS.
Khalil Muri
The only thing I’d add, Max, is that if you look at Q1 or Q2 prices versus Q1, all the materials went up in Q2. So a lot of that AP can be attributed to higher prices as well.
Unidentified Analyst
Okay. Understood. Okay, maybe just one final one, just the timing, I think your parent company has established a new Gentari, new Energy Group, trying to understand how is the synergy, right? Because they are looking to put up charging infrastructure, right. So how does it tie in back in your explorations? Yeah, just as an overall.
Khalil Muri
Right, so I guess Max, what I can share is Gentari is the clean energy arm of PETRONAS. You’ll see more and more collaborations between Berhad and Gentari in the form of EV charging solar. They have three main pillars in Gentari. One is hydrogen, one is green mobility and another one is renewables. Going forward, you’ll see a lot of work, working with Gentari and specifically around solar and EV charging.
Unidentified Company Representative
Right, next we have, Nani. Nani, appreciate if you can mention the company that you present first.
Unidentified Analyst
Can you hear me?
Liza Mustapha
Yes.
Unidentified Analyst
I am Dr. Ross Nani. I’m from the IMD Securities. Nice to be able to join the presentation for the first time anyway. I have three questions. One in regards to ringgit, ringgit may remain uninspiring I guess until this year next year, what will be the plan to mitigate that, to your performance. Two, what will be your station reopening plan the next one to three years. Three, I believe there will be a knock on effect if the government refute the price of petrol, which I think it may come maybe within a year or two that will definitely hit your volume. I think this is likely [Inaudible] is coming because the government would like to reduce the subsidy for petrol. So do you have a plan to actually offset against the headwinds that come in or the company is still looking for that? That’s all I have.
Liza Mustapha
Yes, I can answer one, then naturally Khalil will answer the opening of the stations and against the subsidy we will work together on that targeted subsidy, sorry. So under Forex, Dr. Nani we always have arrangement with our group Treasury as far as managing the Forex volatility by having the natural hedging with the timing of the payment and also whatever that income that we are going to get. So in knowing when is the timing of the payment and looking forward in ringgit currency versus the US dollar. So that is the one that will be closely monitored to minimize any impact on that ringgit weakening against US dollar. So I guess what I can say is the Forex management has always been there so that we can minimize any further impact of the movement on ringgit. I hope that gives you a bit more of context of how we’ve been managing our forex exposure. It is entirely impossible to completely offset this, right?
Unidentified Analyst
Definitely. Correct.
Liza Mustapha
It’s not entirely we can offset it. But it’s always about how to make the right planning on time. So that we can immediately do the necessary hedging as and when we know that the price will be affected, sorry, the currency will be affected.
Unidentified Analyst
On the stations?
Liza Mustapha
On the station, yes.
Khalil Muri
On the stations, Dr. Nani, we have more than 1,000 stations today, we open between 10 to 15 stations year-on-year that number will taper or vary depending on what we identify, as places as strategic locations that we do want to open and grow with a market and grow with a population. So that’s typically what we do from a station perspective. On number three, in terms of, I think you use the word headwind. When we do look forward, obviously, there’s a lot of challenges around what do you do when petrol goes down or goes up? And how do you future proof yourself. And if you see, a lot of the work that we are doing in the growth area is around nonfuel, in the convenient sector. So we’re trying to future proof ourselves by diversifying our portfolio. And one example of this effort is with our Cafe Mesra that we just launched in July. So that’s part of our foray into the F&B business into ready-to-eat, ready-to-drink, make-to-order as part of our greater expansion into greater convenience for the consumer. So we’re trying to leverage our sites, leverage whatever real estate we have, and expand our offer there.
Unidentified Analyst
So the strategy essentially to offset the headwinds against the new on the contribution of a nonfuel, which is the Mesra, the Mesra what do you call that the Mesra they are attached to your — how many do we have so far for Mesra.
Khalil Muri
We have more than 800 Mesra stores. And for our cafes, we’re focused predominantly in Klang Valley, by the end of the year, we expect to open 50 of those with a view to open a lot more going forward.
Unidentified Analyst
Let me jump my gun first on this. Is there any bullish plan to overtake shell in the number of session?
Khalil Muri
I think we have overtaken them.
Liza Mustapha
We’ve already overtaken shell.
Unidentified Analyst
I see, you have overtaken, all right. So that’s the fact that I need to find that, okay. That’s all. Thank you. Perhaps my team and me can seek – to see the management to get a better perspective on the company very soon. Thank you for your presentation and hope to engage with the company again, in the third quarter. Thank you very much.
Unidentified Company Representative
Right, so due to the limited time, we will only take in questions for those who have raised their hands currently. Just to be fair to everyone here. So we are limiting one questions for each here. Right. Can we have, is Dukey?
Unidentified Analyst
Okay, I think we are okay to little bit more, the time to allocate.
Unidentified Company Representative
So we have Steven. Steven?
Unidentified Analyst
Hello, hi, good morning. Yes, thanks, I mean appreciating you limiting to one question.
Unidentified Company Representative
Your best question, Steven.
Unidentified Analyst
Okay. Probably I asked about your transferring of the working inventories to PETCO. I understand that is done in order to eliminate the exposure that you guys have on the fluctuation of the MOPs prices. Does that mean going forward, let’s say that third quarter, the margins, especially for your retail segment, should stabilize in comparison to the second quarter.
Khalil Muri
I guess the two things, Stephen, is it? Yes. Would be we no longer take inventory exposure that’s with the new operating model, so we no longer have inventory exposure? That would be number one. Retail margins are typically very regulated against what the pump price is versus the purchase price. So that’s taken care of by MOF. So I guess the answer is the retail margin should remain stable in Q3 against Q2.
Unidentified Analyst
Yes. Especially on a gross level. Okay. All right. I just want to confirm this. I think I’ll pass the floor to other analysts. Thank you.
Unidentified Company Representative
Thanks again, Steven. Can we have Raymond back? Hi, Raymond.
Unidentified Analyst
Yes. Okay. Yes. I just wanted to ask about the retail, Mogas and diesel sales, what percentage of the pre-COVID base in 2019 is it now? Is it already higher than the pre-COVID-19? And similarly, for the commercial diesel and commercial jet fuel, commercial jet fuel should be lower. But just wanting to see if you can give me a percentage.
Liza Mustapha
We are not yet 100% back to 2019 as far as both Mogas and diesel is concerned, Raymond. We’re still below one digit percentage for against 2019.
Unidentified Analyst
Okay.
Liza Mustapha
Yeah. So I can tell you it is still within 7% to 10%.
Unidentified Company Representative
Umeng?
Unidentified Analyst
I should have three question. Is it okay, if I asked quickly? Okay, let’s just –
Liza Mustapha
Umeng, blend jam.
Unidentified Analyst
Can — one of these days, when we officially see you [Multiple Speakers] on the product if I want to ask you because the product mix, maybe just focus on Mogas and diesel, right. You used to disclose the product mix and they are roughly similar to each other? Are they roughly — are they back to that level now where both the mortgage and the diesel are also roughly similar to each other in volume? I think you used to disclose like maybe 40% Mogas.
Liza Mustapha
It’s roughly still that. It’s roughly that percentages, yes.
Unidentified Analyst
Okay. Got you. All right. Second question is in regards to your parental support, right? How much more can PETRONAS support you in terms of extending credit terms depending on whether subsidiaries go? Or is it fair to say that they will actually support you with on the body of the subsidy and then a smaller impact, and then the remaining on a smaller scale that you have to you may need to borrow from the loans, which is not very big in the sense.
Liza Mustapha
Currently, we have this arrangement for how long it is not necessarily limited to the current period. So, as long as we need to have the support coming from them, we can always have that commercial discussion with them. And make sure that is on arm’s length as well, as far as the arrangement is concerned. I think similarly, we have the same request coming from our customers, as far as the credit term is concerned, we do look into on a case to case basis as well. So I guess it’s a matter of having that conversation justification, as long as it’s arm’s length, and we are able to get the support accordingly, Umeng.
Unidentified Analyst
Okay, got it, last question. Not long ago you used to do an impairment of one of the government receivables that was three years outstanding. So my question this time around is will you use the same policy to assess impairments on down receivables? Like is that meant that long that only you impaired? Yeah.
Liza Mustapha
To me, we will always refer back to the impairment process that we need to do, the steps that we need to do. We are guided also by the auditor, if there’s anything that we need to impair and those are the assessment that we will do as far as impairment is concerned. So, I will not say that is a simplistic way of you make an impairment, there has to be justification, there has to be whatever the supporting to impair or not to impair and again, the independent parties, auditor to make sure that we are doing it with the necessary steps as far as the standards is concerned. So, I mean, assure you that it is something that we will not just simply impair or do not impair is always the assessment that we need to do and ally with auditors as well.
Unidentified Analyst
But had the [Inaudible] changed a lot versus the last time like are they, do they? What was the value of the view let’s say one year or wondering [Multiple Speakers]
Liza Mustapha
I can’t really say. At the end of the day, the conversation is always about what are your supporting? What are the rationale behind the numbers? Whether you don’t have to impair, we are still in the half year of the review. So I think whatever assessment that will be done it will be look at it accordingly. But at the end of the day, what we know is there are for example, they are relevant, supporting to any of our assessment on the future impairment. And with regard to if you’re referring to the subsidy or government related work is always depending on how strong is the situation today. We know that, in the past, this has always been a temporary in nature, and hence why this is something that we will be closely monitoring. And with the recovery of the economy today with a lot of more in a way, generation of income for the country, we hope that this will also boost the entire country’s cash flow or the country’s requirements.
Unidentified Company Representative
So, yes, that’s it. Ladies and gentlemen, we have come to the end part of our session. We are in for some of the information in this presentation will be made available in our websites. So we thank you again for your participation in this session. Have a pleasant day ahead, be safe and be well everyone. Thank you.
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