Maintain Sell (TP: RM6.10). Petronas Chemicals (PChem) FY23 core PATAMI of RM1.5bn (-78% YoY) were below both our and consensus forecast at 76% and 60% respectively. 4Q23 core earnings fell 52% QoQ and 87% YoY hampered by losses at olefin and derivatives (O&D) segment. The company announced 2nd interim DPS of 5sen (2H22: 16sen) bringing total DPS for FY23 to 13sen (FY22: 41sen) which implies dividend yield of 1.8%. We cut our FY24-26F earnings forecast by 10.3%/8.6%/8.1% mainly as we trim earnings contribution from JV companies. We expect challenging market condition to persist given headwinds in end-market demand and tensed competition from Chinese producers. Maintain a SELL recommendation on PChem with an unchanged DCF-derived TP of RM6.10 as the stock is trading at 20x FY24F P/E which is above long-term average of 17x P/E.
Key highlights. 4Q23 core earnings declined 51% QoQ to RM146mn mainly due to losses at O&D segment which suffered from (i) production interruption from unplanned shutdown and gas feedstock supply, and (ii) higher repair and maintenance costs. Revenue, however, rose 6.3% QoQ to RM7.2bn due to higher PU at Fertiliser and Methanol (F&M) segment, boosting blended PU to 84% (3Q23: 77%).
Earnings forecast. We trimmed our FY24F/FY25F/FY26F earnings forecast by 10.3%/8.6%/8.1% as we cut earnings contribution assumption from JV companies as well as increase minority interest charges to account for the disposal of 25% interest in Petronas Chemicals Fertiliser Sabah Sdn Bhd (PCFS) to the Sabah government which took effect in 2Q23.
Outlook. Against the backdrop of weak product margin environment, the company will commission several new plants in 2024 including (i) melamine in Gurun, Kedah, (ii) Pentaerythritol in Sayakha, India, and (iii) 2-EHA under JV company in Gebeng.
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