March 18, 2015

Petron Corp’s 2014 earnings falls 41% on inventory losses

Petron Corp (PCOR) disclosed yesterday that it posted consolidated net profits (before minority interests and preferred dividends) of P3b in 2014, which represents a 41% decline from the previous year’s P5.1b. Profit margins came under pressure as the sustained drop in crude oil prices resulted in huge inventory losses of P6.5b.

The price of benchmark Dubai crude fell by almost half in 2014 to US$55/barrel as of end-December 2014 from US$108/barrel the previous year.

Revenues grew 4% to P482b as volume sales increased by 6% to 86.5m barrels compared with 81.7m barrels the same period last year. The domestic market posted strong volume of 9% to 51.5m barrels as retail volumes surged 6%, the highest growth in the past five years. LPG volumes likewise grew by 5% supported by higher retail and industrial sales. Meanwhile, Petron Malaysia turned in slightly higher volume sales of 35m barrels, up 2%.

Meanwhile, the company announced it board of directors approved a P0.05/sh cash dividend, payable on 16 April to all common shareholders on record as of 1 April. This year’s dividend is the same as last year and translates to a dividend yield of 0.5%.

Our take: Notwithstanding the significant profit decline, the results surpassed expectations with PCOR posting a smaller-than-expected net loss of approximately P0.2b in 4Q14. Crude oil prices posted a sharper decline in 4Q14, down an estimated 40% in 4Q14 compared with 12% in 3Q14 but last quarter’s net loss amounted to only P0.2b compared with net profits of P0.19m in 3Q14. We believe that effective hedging transactions, in the face of falling crude oil prices, helped temper last quarter’s loss.

For its part, PCOR said the 9% increase in Philippine sales volume, the completion of strategic projects (Refinery Master Plan Phase 2 or RMP-2) and pro-active risk-management cushioned the impact of higher priced inventory being sold at lower prices in 2H14. - WealthSec