• Overview. 4Q19 core profits plunged 78% yoy to RM278m mainly on lower product prices and plant utilisation rate (PU). On qoq basis, despite higher revenue of RM4.2bn (15% qoq), core profits declined 55% mainly due to lower product spread.

• Key highlights. 4Q19 PU was lower at 89% (4Q18: 94%) with higher maintenance activities. Meanwhile, the full year FY19 PU stood at 92% which is similar to FY18 PU.

• Against estimates: Below. FY19 core profit of RM2.9bn (-43% yoy) came in behind both our and consensus’ forecast at 89 and 86% respectively. The deviation against our forecast mainly stems from lower-than-expected ASP for O&D segment.

• Dividend. A 2 nd interim DPS of 7 sen was declared which is lower than 4Q18 DPS of 18 sen. This brings YTD DPS to 18 sen (FY18: 32 sen) implying payout of 50% and dividend yield of c.3%.

• Outlook. The ASP for chemical products are expected to remain weak due to weak demand from China amidst Covid outbreak. Nonetheless, we gathered that several naphtha-based chemical producers are curtailing production which could lend support to the ASP from further downside.

• Earnings revision. We cut our FY20-21F earnings by 36%/35% (Table 3) as we adjust lower our ASP assumption for O&D segment. We also introduced our FY22F figure in this report (Table 5).

• Our call. We upgrade PChem to BUY (from HOLD) with a lower DCFderived TP of RM6.60 (from RM7.60). This implies 22x FY20 P/E and 18x ex-cash P/E. In our view, despite challenging near term outlook, its medium to long term prospects remain intact as it pursues growth within specialty chemical space

Source: BIMB Securities Research - 27 Feb 2020