Petron is the largest downstream oil & gas player in the Philippines in terms of refining capacity, and is the third largest in Malaysia. Consequently it is well positioned in two growing economies where fuel demand is rising steadily.

Since retail prices of fuel oils are adjusted on a weekly basis according to international crude oil prices in the Philippines, the company could see its margins getting squeezed as it bought expensive crude oil in 2Q22, and prices have softened now.

Petron operates in a low margin business (EBITDA margins of ~5%) and incurs significant capex to fund its expansion plans, leading to strained free cash flows and elevated credit metrics.

COVID-19-induced restrictions over the past two years have dented Petron’s sales volumes as inter- and intra-city travel were curtailed. Though revenues recovered in 1H22, any new variants of COVID could again impact demand for fuel products.

Petron holds 55 days of inventory, which is on the high side relative to industry standards. This exposes the company to inventory losses attributable to potential short-term swings in crude oil prices.

Prices of fuel products are adjusted on a weekly basis in the Philippines, according to international crude oil prices. The company has bought expensive crude oil in 2Q22, which could impact margins going forward, as it will have to sell fuels at a lower prices as benchmark prices soften.

Petron operates in a capital intensive, low-margin business and incurs significant capex to fund its expansion plans, leading to strained free cash flows and elevated credit metrics.

Petron is highly dependent on its Limay petroleum refining complex that makes up two-thirds of its total refining capacity (67%). Any events that disrupt the refinery’s operations could adversely affect Petron’s total revenues.