• Overview. PChem 1Q21 core profits soared to RM1.3bn as higher polymer prices underpinned expansion in product spread. Revenue gained by 20% yoy and 22% qoq to RM4.6bn while EBITDA margin improved to 36% (1Q20: 22%; 4Q20: 32%). That was despite lower utilisation rate due to heavier maintenance works.

• Key highlights. 1Q21 plant utilisation (PU) was lower at 90% (1Q20: 94%, 4Q20: 94%) due to scheduled plant turnaround at Gebeng’s PDH plant and Labuan’s PC Methanol 1 plant as well as corrective maintenance works at Asean Bintulu Fertiliser (ABF) plant, PC Fertiliser Kedah and PC Fertiliser Sabah.

• Against estimates: Above. 1QFY21 core profit exceeded both our and consensus’ estimate at 62% and 41% respectively.

• Pengerang update. The company remains focused to commence Pengerang Integrated Complex (PIC) operation in June 2021, however earnings contribution is seen to be limited due to unfavorable market prices for the Petronas’ refining unit.

• Product prices outlook. Product prices has corrected from its recent peak with more supply coming into the market. However, this remains well above our assumption. Hence, we raise our earnings for FY21F/FY22F/FY23F by 145%/74%/38% to account for higher product prices (table 4).

• Our call. Maintain SELL with higher DCF derived TP of RM7.10 (from RM5.50). This implies FY21F PE of 11x. The stock price has rallied 10.9% YTD on expectation of stronger earnings, however, we believe the upside is limited particularly as the US supply is returning back into the market. Look to accumulate at lower level.

Source: BIMB Securities Research - 28 May 2021