• Overview. PChem 3Q20 core profits declined 10% yoy to RM556m due to weaker average selling price (ASP), partially offset by higher sales volume on higher plant utilisation (PU). Our core profits exclude unrealised FX loss worth RM85m from revaluation of USDdenominated shareholders’ loan. On qoq basis, earnings more than doubled (2Q20: RM159m) as ASP recovered.
• Key highlights. 3Q20 plant utilisation (PU) was higher at 90% (3Q19: 81%) on lower maintenance activities.
• Against estimates: Below. 9M20 core profit of RM1.1bn (-44% yoy) came in behind both our and consensus’ forecast at 56% and 61% respectively. The main deviation against our forecast was due to slower ASP recovery than we expected. We cut FY20/21/22F earnings by 17%/12%/10% (Table 4) as we assumed lower ASP.
• Outlook. Product prices are expected to remain weak despite initial signs that they could have bottomed out in 2Q20.
• Our call. Downgrade to TRADING SELL (from HOLD) with lower DCF derived TP of RM5.50 (from RM6.60). While we continue to favor the stock on a longer term perspective for growth potential in specialty chemical space as well as its strong net cash balance of RM10.7bn (or RM1.34/share), we believe the stock price has ran ahead of fundamentals amid downcycle in petrochemicals. Look to accumulate at lower level.

Source: BIMB Securities Research - 19 Nov 2020