• Overview. PChem 2Q21 core profits rose 40% qoq to RM1.86bn driven by higher selling price as well as additional sales volume from fertiliser and methanol segment following the completion maintenance activities in 1Q21. Production volume rose by 8% qoq to 2.7m MT (1Q21: 2.5m MT) driven by higher plant utilisation.
• Key highlights. 2Q21 plant utilisation (PU) was higher at 97% (1Q21: 90%). Recall that there were scheduled plant turnaround activities 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 in 1Q21.
• Against estimates: Inline. Despite 1HFY21 PU was slightly weaker at 97% (1H20: 100%), core profit more than quadrupled to RM3.2bn mainly due to higher ASP. This was within our estimate at 61%, but came in above consensus’ at 78%.
• Dividend. A 1st interim DPS of 23sen was declared which is higher than 1H20 DPS of 5sen. This implies payout ratio of 58%. 
• Product prices outlook. We expect prevailing strong product prices to normalise in 2H21 as we expect demand to cool off amidst the expectation of slower China’s economic growth. The upside in product price will also be capped by the return of US supply, in our view.
• Our call. Maintain our SELL recommendation with unchanged DCF derived TP of RM7.10. This implies FY22F PE of 13x. While we remain upbeat on its long term growth prospect, we think the stock price has ran beyond its fundamental, possibly as the market being too overly optimistic on the product price outlook. Look to accumulate at lower level.

Source: BIMB Securities Research - 26 Aug 2021