• Overview. PChem 1Q22 core profits grew 54% yoy at RM2.1bn mainly driven by higher urea prices and stronger profit from its specialty chemical segment contributed by BRB’s new silicone blending plant in Gebeng. This had more than offset the decline in O&D profit which were 17% lower yoy. On a qoq basis, earnings were largely flattish as income from specialty chemicals helped to offset the decline in F&M profit.

• Key highlights. PChem recorded lower plant utilisation (PU) at 87% (1Q21: 90%, 4Q21: 89%) due to plant turnaround at PC Olefin, PC Derivatives and PC Aromatics in the O&D segment.

• Against estimates: Below. 1QFY22 core profit made 23% and 30% of our and consensus’ estimate respectively. We deem this as below our forecast but within consensus’ in expectation of weaker earnings in the coming quarter. As such, we cut our FY22F earnings forecast by 7.5% to RM8.1bn (from RM8.8bn) as we reduce our FY22F plant utilisation rate assumption to 88% (from 92%).

• Maintenance plan 2022. In 2Q22, planned maintenance activities will involve PC Methanol 2 and PC Fertiliser Sabah. This will drag the segment PU to c.80% in 2Q22 (1Q22: 93%). Despite that, management still expects to achieve PU of 90% in FY22.

• Outlook. High fertiliser prices has caused buyers to delay purchases. This, coupled with a resumption in supply which has caused some price correction in the urea market as we expected. Hence, we expect a sequentially weaker quarter in 2Q22 due to lower urea price and plant maintenance at F&M segment.

• Our call. Maintain our SELL recommendation with a lower DCF derived TP of RM8.70 (from RM9.00). This implies FY23F PE of 11.5x. At current stock price level, we think it has fairly reflected its strong earnings from high ASP. With the expected correction in commodities price, we see current risk-to-reward as not favourable.

Source: BIMB Securities Research - 30 May 2022