• Overview. PChem 4Q20 core profits more than double to RM577m mainly due to improving product spread. Revenue declined by 9% yoy to RM3.8bn due to weaker average selling price (ASP) and sales volume. However, EBITDA margin improved to 32% (4Q19: 16%) on lower maintenance and feedstock costs. On qoq basis, earnings are flattish as it was impacted by large losses at JV/associate line due to cessation of Butanediol (BDO) complex. The BDO complex was ceased due to overcapacity concern from new supply of coal-based BDO production.

• Key highlights. 4Q20 plant utilisation (PU) was higher at 94% (4Q19: 89, 3Q20: 90%) on lower maintenance activities. This includes turnaround at MTBE plant.

• Against estimates: Inline. FY20 core profit of RM1.7bn (-41% yoy) was largely within both our and consensus’ forecast at 102% respectively.

• Dividend. A 2nd interim DPS of 7 sen was declared which is similar to 4Q19 DPS. This brings FY20 DPS to 12 sen (FY19: 18 sen) implying payout of 57% and dividend yield of c.2%.

• Outlook. Pengerang Integrated Complex (PIC) start-up is further delayed to 2H21 due to integration issues. While product prices are still rising upwards, we remain wary of potential new supply from the US as well as China’s self-sufficiency target which could limit further upside to ASP.

• Our call. Maintain SELL with unchanged DCF derived TP of RM5.50. This implies FY21F PE of 20x. While we continue to favor the stock on a longer term perspective for growth potential in specialty chemical space, we believe the upside is limited amid current downcycle in petrochemicals. Look to accumulate at lower level.

Source: BIMB Securities Research - 24 Feb 2021