Overview. PChem 3Q21 core profits rose marginally by 4% qoq to RM1.94bn mainly due to higher JV contribution supported by strong urea prices. Revenue rose 2.8% to RM5.77bn due to higher ASP but EBITDA dipped 2.2% on lower sales volume and O&D product spread. On yoy basis, 3Q21/9M21 core profit surged 250%/363% to RM1.9bn/RM5.1bn mainly due to higher ASP.

Key highlights. Plant utilisation (PU) eased to 94% in 3Q21 (2Q21: 97%) due to plant turnaround at PC Fertiliser Kedah as well as repair and maintenance at PC Ethylene and PC Polyethylene in Kerteh.

Against estimates: Above. 9MFY21 core profit came in stronger than both our and consensus’ estimate at 98% and 92% respectively. The deviation against our estimate was due to (i) stronger F&M segment, (ii) higher contribution from JV and (iii) lower effective tax rate.

Earnings revision. We revise our FY21F earnings forecast higher by 18% to RM6.2bn as we assume higher earnings from JV and lower effective tax rate of 6% from 14% initially estimated. However, no changes were made to our FY22-23F forecast. We expect prevailing strong product prices to normalise in FY22F onwards based on our expectation that (i) supply chain disruption problem to ease as the world ramping up vaccination effort and (ii) weaker China’s petchem demand due to weak property market. Besides that, strong earnings growth in 2021 may not be sustained into 2022 as there will be a heavier maintenance in F&M segment.

Special dividend. A special DPS of 10sen was declared. This brings YTD DPS of 33sen which implies payout ratio of 52%.

Our call. Maintain our SELL recommendation with unchanged DCF derived TP of RM7.10. This implies FY22F PE of 13x.

Source: BIMB Securities Research - 23 Nov 2021