• 2Q18 core earnings jumped 41% yoy and 11% qoq to RM1.4bn mainly on better F&M performance. Overall, 1H18 core earnings were ahead of ours and consensus estimate at 67% and 59% respectively.

• A first interim DPS of 14 sen was declared which is higher than 12 sen DPS for 2Q17.

• We raised our FY18/FY19/FY20 earnings forecast by 15%/15%/14% as we revisit our assumptions.

• Reiterate BUY on PChem with higher DCF-derived TP at RM10.50 (from RM10.00). We remain excited with the company’s outlook as it poised to commence its RAPID complex in FY19

F&M segment boosted profits

PCG posted its highest quarterly profit in 2Q18 mainly on better contribution from the F&M segment. Core profit rose 40.8% yoy to RM1.36bn largely on better utilisation rate forF&M segment (2Q18: 99% vs 2Q17: 88%) and higher ASP. Overall, 1H18 core profit came ahead of ours’ and consensus estimate at 67% and 59% respectively.

Flattish O&D segment on maintenance activities

The O&D segment fell slightly by 0.4% yoy as it recorded lower utilisation rate (2Q18: 88% vs 2Q17: 91%) amidst a statutory turnaround at the PDH plant and minor maintenance at its ethylene cracker at Kertih. These resulted in lower sales volume of high-margin products (i.e. ethane-based products) and led to weaker margin (2Q18: 34.3% vs 2Q17: 37.3%).

Heavier maintenance in 2H18

PCG plans to conduct several statutory turnarounds in 2H18 which involves 400k MPTA ethylene cracker (3Q18), Labuan Methanol Plant 2 (3Q18) and the Asean Bintulu Fertiliser plant (4Q18). Notwithstanding, we are optimistic it can still achieve its target of 90% utilisation rate in FY18.

Raise FY18-20F earnings

We raised FY18/FY19/FY20 earnings forecast by 15%/15%/14% as we tweaked our USDMYR rate, ASP for the F&M segment and tax rate assumptions (Table 3 & 4).

Reiterate BUY recommendation

We remain excited with PCG’s outlook as we expect strong earnings growth of 13% CAGR over FY17-20F mainly driven by RAPID. Reiterate BUY with higher DCF-derived TP of RM10.50 (from RM10.00) which implies FY18E PE of 18.8x before easing to 16.5x. Our DCF is based on WACC of 8.0% and LT growth rate of 0%.

Source: BIMB Securities Research - 16 Aug 2018