• Overview. 2Q19 core profits dropped 18% yoy to RM1.1bn mainly on lower ASP. On qoq basis, core profits rose 28% driven by record production of urea and methanol (+c.40% qoq) and higher spread boosting F&M profits.

• Key highlights. PCG’s plant utilisation (PU) reached 103% in 2Q19 underpinned by record 107% PU at F&M and 97% PU for the O&D segment despite maintenance at the MTBE plant.

• Against estimates: Below. 1H19 core profit of RM1.98bn came at 51% and 50% of ours and consensus’ forecast respectively. We deem this as below forecast in anticipation of weaker 2H19 performance amidst lower ASP and PU.

• Dividend. An 11sen DPS was declared, implying 44% payout. This is lower than 14sen DPS for 2Q18.

• Outlook. PCG will undertake heavier statutory turnaround in 3Q19 involving 600k MTPA ethylene cracker, LDPE plant and SAMUR. These, coupled with softening ASP, would cap further earnings recovery in 2H19, in our opinion. We cut FY19-21F earnings by 18- 27% to reflect weaker ASP (Table 4).

• Our call. Maintain HOLD with lower DCF-derived TP of RM7.50 (from RM9.10). We see limited near-term catalyst for the stock as the US-China trade tension continues unabated. However, the medium to long term prospects remain intact, in our view, especially ahead of the RAPID completion in 4Q19. Look to accumulate at lower levels.

Source: BIMB Securities Research - 14 Aug 2019