OSK Research maintains a 'Neutral' view on Petronas Chemicals Group Bhd (PCG) and 'holds' its financial year 2011 and 2012 forecasts following the memorandum of understanding (MoU) with Germany's BASF.

Last Friday, PCG's parent company, Petronas, inked a MoU with BASF to undertake a joint feasibility study to produce speciality chemicals in Malaysia and are considering a joint investment of RM4 billion.

The final scope of the investment will be determined following the outcome of the joint feasibility study expected to be completed next year.

'Our target price for the company remains at RM5.51 based on a price-earning ratio of 16 times financial year 2012 earnings per share. We view the MoU positively,' said OSK in a research note today.

BASF is an established petrochemical company and it will also be more commercially viable to jointly undertake the investment since the specialty chemicals may need an investment of about RM4 billion, it said.

OSK said the development of a new specialty chemical products portfolio is in line with Petronas Chemicals' goal to further grow the downstream petrochemical business as part of its integrated plan to be a key player in the region and to spur domestic investment in the oil and gas and petrochemical industries.

'Despite our Neutral call on the stock, we continue to like the company's strong backing from Petronas Group, especially in keeping its feedstock prices low, and attractive dividend payout ratio of 50 per cent, which is the highest among its closest peers,' it added. -- Bernama