While Petron’s credit metrics remain elevated, we see a stable FY23 credit outlook owing to moderating crude oil prices and resilient fuel demand aided by the company’s dominant market share in 2 markets.

Petron is fairly insulated against high crude oil input costs as about two-third of its total revenues are indexed to Dubai crude prices, which allows for cost pass-throughs in Philippines.

Liquidity remains tight, though we expect its stable fundamentals and strong SMC group reputation to facilitate debt rollover and refinancing.

We see low non-call risk for Petron’s $478 mn c.Jul-2023 perp given its punitive 250 bp coupon step-up, its desire to avoid reputational risk and contagion risk to other SMC perps, and that it can be covered by its unrestricted cash balance or be refinanced.

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.

Petron operates in low-margin business (EBITDA margins ~5%) and maintains 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.