• Overview. Petronas Chemicals (PChem) 2Q22 core profits were largely flattish YoY but declined 9% QoQ to RM1.9bn mainly due to weaker profit from fertiliser and methanol (F&M) segment amidst plant maintenance. Still, 1H22 core profit rose by 23% YoY to RM3.9bn on stronger ASP. This had more than offset the impact of weaker sales volume which declined by 14% YoY to 3.5mn MT due to weaker plant utilisation (PU) of 79% (1H21: 94%).

• Key highlights. PChem recorded a much lower PU at 72% in 2Q22 (2Q21: 97%, 1Q22: 87%) due to planned turnaround at PC Methanol 2 (Labuan) and PC Fertiliser Sabah in the F&M segment.

• Against estimates: Inline. 1H22 earnings are largely in line with our and consensus’ expectation as it accounted 48% and 51% of full year forecast respectively.

• Dividend. A 1st interim DPS of 25sen was declared which is higher than 1H21 DPS of 23sen. This implies a payout ratio of 51%.

• Pengerang Integrated Complex. Management is looking at achieving commercial operation date in December 2022. Subsequently, revenue and opex recognition from this plant shall commence.

• Outlook. Product prices has further weakened amidst prolonged lockdown in China which will negatively impact earnings in 2H22. This, however, will be partially offset by new earnings contribution from the acquisition of Perstorp which is expected to be completed by the end of 2022. We take this opportunity to raise our FY22F/FY23F/FY24F earnings by 3%/12%/8% to RM8.3bn/RM6.8bn/RM6.1bn (see Table 4) to account for this.

• Our call. We upgrade PChem to a HOLD call (from a SELL) as the stock price has declined by c.13% over the past 3 monthsto reach our initial TP of RM8.70 no thanks to concern over weaker product prices in 2H22. We now raise our TP to RM9.00 after taking into account potential earnings contribution from Perstorp.

Source: BIMB Securities Research - 23 Aug 2022