Scribd Logo
Upload

Welcome to Scribd!

  • 80 views

    Petron Corporation: Challenging Outlook Amid COVID-19

    Uploaded by

    Kimberly Anne Caballes
    Petron Corporation (PCOR) is the largest oil refining and marketing company in the Philippines and a leading player in Malaysia. Demand for oil has significantly declined during the COVID-19 pandemic, dropping PCOR's volume by 30-40% and forcing them to reduce refinery utilization and temporarily close 10% of stations. Some refining margins are still negative due to the sharp decline in oil demand. However, PCOR's debt remains manageable and they are working to secure loans to cover upcoming debt maturities. While PCOR is positioned to benefit from long-term growth in the Philippines, this year volumes and margins will be weak due to COVID-19, and the company risks breaching financial covenants.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd

    Petron Corporation: Challenging Outlook Amid COVID-19

    Uploaded by

    Kimberly Anne Caballes
    80 views3 pages
    Petron Corporation (PCOR) is the largest oil refining and marketing company in the Philippines and a leading player in Malaysia. Demand for oil has significantly declined during the COVID-19 pandemic, dropping PCOR's volume by 30-40% and forcing them to reduce refinery utilization and temporarily close 10% of stations. Some refining margins are still negative due to the sharp decline in oil demand. However, PCOR's debt remains manageable and they are working to secure loans to cover upcoming debt maturities. While PCOR is positioned to benefit from long-term growth in the Philippines, this year volumes and margins will be weak due to COVID-19, and the company risks breaching financial covenants.

    Original Description:

    making

    Original Title

    Petron Corporation

    Copyright

    © © All Rights Reserved

    Available Formats

    DOC, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Petron Corporation (PCOR) is the largest oil refining and marketing company in the Philippines and a leading player in Malaysia. Demand for oil has significantly declined during the COVID-19 pandemic, dropping PCOR's volume by 30-40% and forcing them to reduce refinery utilization and temporarily close 10% of stations. Some refining margins are still negative due to the sharp decline in oil demand. However, PCOR's debt remains manageable and they are working to secure loans to cover upcoming debt maturities. While PCOR is positioned to benefit from long-term growth in the Philippines, this year volumes and margins will be weak due to COVID-19, and the company risks breaching financial covenants.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    80 views3 pages

    Petron Corporation: Challenging Outlook Amid COVID-19

    Uploaded by

    Kimberly Anne Caballes
    Petron Corporation (PCOR) is the largest oil refining and marketing company in the Philippines and a leading player in Malaysia. Demand for oil has significantly declined during the COVID-19 pandemic, dropping PCOR's volume by 30-40% and forcing them to reduce refinery utilization and temporarily close 10% of stations. Some refining margins are still negative due to the sharp decline in oil demand. However, PCOR's debt remains manageable and they are working to secure loans to cover upcoming debt maturities. While PCOR is positioned to benefit from long-term growth in the Philippines, this year volumes and margins will be weak due to COVID-19, and the company risks breaching financial covenants.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 3

    Petron Corporation

    Challenging outlook amid COVID-19

    Background
    Petron Corporation (PCOR), a member of the San Miguel Group, is the largest oil refining and marketing
    company in the Philippines, and is a leading player in the Malaysian market. In terms of retail market
    share, they are number one in the Philippines and number three in Malaysia. PCOR operates the largest
    refinery in the country located at Limay, Bataan. The company derives their sales from retail petroleum,
    industrial sales, supply sales, and LPG sales. In terms of marketing, they have more than 2,200 service
    stations in the Philippines and 580 stations in Malaysia.
    Demand for oil has significantly declined during the enhanced community quarantine period (ECQ). In
    fact, management noted that PCOR’s volume has dropped by 30-40% from pre-ECQ level. Note that the
    company has already reduced the utilization of the Bataan refinery to 60-70% to lower production
    volumes. Moreover, the company has temporarily closed 10% of its retail network stations across the
    country. Moving forward, we expect that demand would slowly recover but remain at subdued levels
    after the quarantine period, as people would still likely limit leaving their houses and travelling.

    Some refining margins are still at negative territory due to the sharp decline in oil demand. As of mid-
    April, we estimate that gasoline cracks were still at negative US$1-2/bbl. Nevertheless, we expect that
    gasoline cracks will eventually revert to positive territory but will still remain at low levels in the near
    term. Management also noted that the company’s supplier granted crude discounts, which could partly
    cushion the significant decline in refining margins.

    PCOR’s debt to equity ratio remains manageable and within the company’s financial covenant. Note that
    approximately half of the company’s maturing debt this year (~Php8Bil) is already covered by yen loans
    that were acquired early this year. Moreover, the company is currently working on securing bilateral
    loans to cover the remaining half. Furthermore, the company has reduced its capex budget by 30% to
    ~Php7Bil in order to preserve more cash and strengthen its balance sheet. However, we remain cautious
    of the company’s net leverage ratio. Given the dim outlook for the year, we believe PCOR might be at
    risk of breaching its financial covenant of net leverage ratio not exceeding 6.5X. Nevertheless, the
    company noted that they are constantly in communication with creditors should there be a need to
    relax or modify existing financial covenants.

    Investment thesis:
    Beneficiary of the growing petroleum demand PCOR is poised to benefit from the the Philippines’ rising
    oil demand due to the country’s srong GDP. The Philippines’ GDP for the next five years is expected to
    continue at an average of 6-7%, making it one of the fastest growing economies in Southeast Asia. As
    such, we expect that petroleum demand will grow at ~7% in the following years.

    PCOR plans to put up 200 service station per year in the Philippines and 30 stations per year in Malaysia
    to capture industry growth and improve market penetration. We estimate that the company’s market
    share will increase to ~36% by 2020 (from 28.6% as of 1H17) and gross margins to improve by ~20bps
    assuming all supply sales (volumes currently sold to competitors) will be eliminated and sold through
    PCOR’s retail network instead.

    Maintain HOLD rating. We currently have a HOLD rating on PCOR. We expect volumes to be weak and
    refining margins to remain at depressed levels this year due to the COVID-19 pandemic and supply glut
    in the oil industry. Moreover, we remain cautious of the company’s financial covenants.

    You might also like