Petronas Chemical Group - Oh My Chemicals

Date: 20/11/2019

Source  :  HLG
Stock  :  PCHEM       Price Target  :  6.99      |      Price Call  :  HOLD
        Last Price  :  7.51      |      Upside/Downside  :  -0.52 (6.92%)

PCHEM’s 9M19 core net profit of RM2,475m (-36% YoY) came below expectations on weaker-than-expected O&D segment which saw division EBITDA margins shrinking 12ppts YoY due to soft ASP’s. Thus, we slashed our FY19/20/21 earnings estimates by 14%/15%/14% on weaker ASPs and margins. Maintain HOLD rating with lower TP of RM6.99 (from RM7.71) pegged to 7.5x FY20 EV/EBITDA.

Results below expectations. 3Q19 core net profit of RM553.0m (-51% QoQ, -57% YoY) brings 9M19’s total core net profit to RM2,475m (-36% YoY). At 66%/69% of our/consensus full year estimates, this is deemed below expectations with the anticipation of a weaker 4Q finish for FY19. The negative deviation largely stemmed from weaker-than-expected contribution from olefins and derivatives (O&D) segment.

Dividends. No dividends as expected during this quarter.

QoQ: Core earnings declined 51% from RM1.12bn in 2Q19 as the groups utilisation rate dropped to 81% from 100% QoQ due to statutory turnaround and higher level of maintenance activities undertaken. Subsequently, sales volumes declined in tandem with the lower utilisation rates despite product prices improving slightly QoQ.

YoY: Core earnings declined by 57% YoY from RM1.29bn on weakness in both operating segments. For its O&D division, weaker ASPs and lower sales volume as a consequence of higher plant turnaround activities resulted in a marked decrease in utilisation rates (78% vs. 96% in 3Q18). This resulted in EBITDA declining by 57% whilst corresponding margins plummeted by 13ppts (from 31% YoY). This was further compounded by their F&D segment, despite recording higher utilisation rates at 83% vs. 69%, saw EBITDA decline by 21% YoY on softer ASP’s (EBITDA margins declined by 2ppts).

YTD: Despite higher plant utilisation of 93% (vs 91% in 9M18), 9M19 core earnings fell 36% YoY due to weaker contribution from both O&D (EBITDA: -56% YoY) and F&D (EBITDA: -32% YoY) segments as a result of weaker ASPs as well as weaker JV & associates contribution.

Outlook. We expect that the overall existing plant utilisation should hit at least 90% for FY19 even with several scheduled turnarounds in the current quarter under review. Despite this, ASP’s will remain soft as demand remains weak as a consequence of the prolonged trade war between China and US. More details post analyst call later today.

Forecast. We reduce our FY19/20/21 earnings estimates by 14%/15%/14% respectively on lower contribution from O&D segment in view of weaker ASPs and lower margins.

Maintain HOLD with lower TP: RM6.99. Post earnings adjustment, we maintain HOLD rating with lower TP of RM6.99 (from RM7.71) based on a multiple of 7.5x FY20 EV/EBITDA. This is largely due to the sector de-rating (as evident by the global peers) as a result of sluggish petrochemical outlook.

Source: Hong Leong Investment Bank Research - 20 Nov 2019

Share this
Labels: PCHEM

Related Stocks

Chart Stock Name Last Change Volume 
PCHEM 7.51 +0.01 (0.13%) 3,595,200 

  Be the first to like this.

I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
Earn MQ Points while trading with MQ Traders Group
MQ Affiliate
Earn side income from MQ Affiliate Program

457  490  616  543 

Top 10 Active Counters
 PRG 0.285+0.055 
 PNEPCB 0.42-0.08 
 XOX 0.105-0.005 
 AT 0.185+0.01 
 SEALINK 0.18+0.015 
 GPA 0.125+0.015 
 IRIS 0.405-0.01 
 JCY 0.515-0.07 
 MTRONIC 0.105+0.005 
 ASIAPLY 0.30+0.03 


1. The Equity Market Index Benchmark in Malaysia CMS
2. Trading Scenarios of Derivatives Bursa Derivatives Education Series
3. Derivatives 101 Bursa Derivatives Education Series
4. Why Trade FKLI? Bursa Derivatives Education Series
5. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!