PCHEM registered a record high 4Q21 core net profit of RM2,107m (+9% QoQ, +202% YoY), bringing FY21 core earnings to RM7,261m (+273% YoY). The stellar results was within ours at 105% but beat consensus full-year estimates at 113% respectively. We believe PCHEM should see an even better 1QFY22 with favourable outlook for all of its major product prices (i.e. polymers, urea and methanol). PCHEM’s share price has a c.90% correlation to Brent Crude Oil prices. According to EIA, Russia is the 3rd largest oil producing nation (11% market share). Amidst the ongoing geopolitical tensions in major oil and gas producing nations, we maintain BUY with a lower TP of RM10.43/share (from RM10.90 previously) – as we switch our valuation methodology to a P/E multiple of 14x of FY22F earnings (from EV/EBITDA of 7.5x previously) – which is at a slight premium to its 5-year pre-pandemic historical mean valuations.

Within ours, above consensus. PCHEM registered a record high 4Q21 core net profit of RM2,107m (+9% QoQ, +202% YoY). Full year FY21 core net profit grew almost 4x YoY to RM7,261m (from RM1,945m in FY20), having adjusted for: (i) RM55m of inventory write-downs/off; and (ii) RM140m of amortisation of deferred income. Key positive variance against our forecast (105%, consensus: 113%) was due to stronger-than-expected urea and methanol prices in 4Q21.

Dividends. PCHEM declared a 2nd interim dividend of 23 sen/share going ex on 11 March 2022. Total dividends YTD amounted to 56 sen/share.

QoQ. Profits were up 9% primarily due to higher urea and methanol prices, which continued its uptrend in 4Q21, up 62% and 12% respectively from 3Q21, based on our tabulation from Bloomberg data. However, strong growth in its F&M segment was mitigated by a weaker showing in the O&D division.

YoY. Profits were up more than 3x YoY due to the following reasons: (i) average polyethylene product prices was up 24-34% in 4Q21; (ii) urea prices more than doubled YoY; and (iii) methanol prices was up 47% YoY. PCHEM’s O&D division earnings grew more than 20-fold YoY and F&M segment more than tripled in profits in 4Q21.

YTD. Core earnings grew almost 4x due to similar reasons stated in YoY para.

Outlook. We believe PCHEM should see an even better 1QFY22 with favourable outlook for all of its major product prices (i.e. polymers, urea and methanol). Also, PCHEM’s share price has a c.90% correlation to Brent Crude Oil prices. According to EIA, Russia is the 3rd largest oil producing nation (11% market share). Amidst the ongoing geopolitical tensions in major oil and gas producing nations, we believe the global dynamics of supply and demand of crude oil will be disrupted and should continue soaring in the near term. On a side-note, we highlight that the commissioning of PIC-PETCHEM will be delayed yet again to end-2QCY22. We highlight that there will be 4 planned turnaround activities in 2022 (same as 2021).

Forecast. We make no changes to our FY22-23f earnings estimates.

Maintain BUY – TP: RM10.43. We maintain BUY on PCHEM with a lower TP of RM10.43/share (from RM10.90 previously) – as we switch our valuation methodology to a P/E multiple of 14x of FY22F earnings (from EV/EBITDA of 7.5x previously) – which is at a slight premium to its 5-year pre-pandemic historical mean valuations.

Source: Hong Leong Investment Bank Research - 25 Feb 2022