• Overview. Petronas Chemicals (PChem) 4Q22 headline profits plunged 75% QoQ and 77% YoY to RM0.5bn due to (i) weaker profit from olefin and derivative (O&D) segment, (ii) non-core forex loss of  RM412mn, and (iii) one-off earn-out payment of RM204mn related to new subsidiary Perstorp’s new plant in Sayakha, India. Excluding these non-core items, PChem core profits came at RM1.1bn.

• FY22 performance. FY22 core profit declined slightly by 5% to  RM6.9bn due to weak 4Q22 result. PChem also recorded weaker plant utilisation (PU) of 89% in FY22 from 93% in FY21. Nonetheless,  sales volume rose 1% YoY to 8.3mn MT mainly due to additional volume from Perstorp which was acquired in 4Q22.

• Against estimates: Below. FY22 earnings are below both our and consensus’ estimate at 87% and 92% respectively. The deviation against our forecast was due to actual opex that came in above expectation. Hence, we trim our FY23F/FY24F/FY25F earnings forecast by 10%/11%/14% (Table 4) to account for higher opex.

• Dividend. A final DPS of 16sen was declared which is lower than 4Q21 DPS of 23sen. This brings YTD DPS of 41sen (FY21: 56sen) which implies payout ratio of 48% (FY21: 62%).

• Pengerang Integrated Complex (PIC). PChem expects to reach the commercial operation date (COD) for PIC in 2H23.

• Outlook. Management guided that demand for O&D has recovered slightly following China’s economic re-opening. However, urea prices are weaker given current off planting season.

• Our call. We maintain PChem as a HOLD with a lower TP of RM8.30 (from RM8.90) following our earnings revision. Despite our earnings revision, we think there’s still some downside risk to our forecast due to softer urea prices.

Source: BIMB Securities Research - 23 Feb 2023