• Overview. PChem 4Q21 core profits hit another record, rose 9% qoq to RM2.2bn mainly driven by soaring urea prices. Fertiliser and methanol (F&M) segment recorded another 42% qoq increase in EBITDA to RM1.6bn. Meanwhile, EBITDA from olefin and derivatives (O&D) segment declined by 23% qoq to RM731m due to contraction in product spread despite higher ASP. On full year basis, PChem delivered solid earnings growth of 335% in FY21 to RM7.3bn on the back of strong product spread resulting in improved EBITDA margin of 36.7% (FY20: 25.7%).

• Key highlights. Plant utilisation (PU) eased to 89% in 4Q21 (3Q21: 94%) due to plant turnaround at Asean Bintulu Fertiliser (ABF) plant in Bintulu and maintenance activities at methanol plant 2. On full year basis, PU was weaker at 89% against 94% in FY20.

• Against estimates: Above. FY21 core profit came in stronger than both our and consensus’ estimate at 118% and 113% respectively.

• Dividend. A final DPS of 23sen was declared which is higher than 4Q20 DPS of 7sen. This brings YTD DPS of 56sen (FY20: 12sen) which implies payout ratio of 62% (FY20: 58%).

• Maintenance plan 2022. Planned maintenance activities will involve PC Aromatic, PC Methanol 2, PC Fertiliser Sabah and PC Derivatives.

• Outlook. High fertiliser prices which contributed to strong earnings in 4Q2021 has corrected in recent weeks. With more supply coming into urea market, we think strong earnings growth in 2021 may not be sustained into 2022.

• Our call. Maintain our SELL recommendation with unchanged DCF derived TP of RM7.10. This implies FY22F PE of 13x. We view recent rally in stock price is not sustainable in anticipation of weaker product spread in coming quarters.

Source: BIMB Securities Research - 25 Feb 2022