PCHEM registered strong 1Q22 core net profit of RM2,033m (-4% QoQ, +46% YoY) and we deem the stellar results to be within expectations at 30% and 28% of ours and consensus full-year forecasts respectively. While we expect a slight dip in 2Q22 profits due to major planned maintenances for its PC Fertiliser Sabah plant and PC Methanol Plant 2, we think that PCHEM will have yet another great year ahead as we expect its product prices expected to stay elevated in FY22. All-in, we maintain BUY on PCHEM with an unchanged TP of RM11.76/share – based on a P/E multiple of 14x of FY22F earnings, which in-line with its 5-year mean valuations.

Met expectations. PCHEM registered strong 1Q22 core net profit of RM2,033 (-4% QoQ, +46% YoY) and we deem the stellar results to be within expectations at 30% and 28% of ours and consensus full-year forecasts respectively. Adjustments were done for: i) RM21m inventories written back to net realisable value; ii) RM22m amortisation of deferred income; and iii) RM30m net gain on forex.

Dividends. No dividends were declared in 1Q22 – which was expected.

QoQ. Revenue and core profit were down 5% and 4% QoQ respectively in 1Q22 due to: i) lower plant utilisation (87%) for its O&D segment on the back of planned turnaround of its PC Olefins, PC Derivatives and PC Aromatics plant – which led to lower production volume of 2.4m MT for the quarter (vs. a plant utilisation of 89% and a production volume of 2.5m MT in 4Q21). Our findings from Bloomberg shows that average polyethylene prices remained somewhat flat QoQ, ranging from -2% to +3% while average urea and methanol prices were also stable throughout 1Q22 at -5% and +3% QoQ.

YoY. Revenue and core profit spiked 42% and 46% respectively YoY mainly due to higher product spreads. Our findings from Bloomberg shows that average polyethylene prices were up 6% to 14% in 1Q22 (vs 1Q21) while urea and methanol prices rose significantly by 106% and 19% respectively.

Outlook. While we expect a slight dip in 2Q22 profits due to major planned maintenances for its PC Fertiliser Sabah plant and PC Methanol Plant 2, we think that PCHEM will have yet another great year ahead as we expect its produc t prices expected to stay elevated in FY22. We also note that PIC-PETCHEM will start up in phases following the stabilisation of the refinery unit and steam cracker unit. The group aims to achieve utilisation of mid-60% for the first few months of operations before ramping up to a target utilisation of 80-90% in FY23. We highlight that this uses naphta as its feedstock – and this would introduce some margin volatility to PCHEM’s future earnings.

Forecast. Unchanged.

Maintain BUY – TP: RM11.76. We maintain BUY on PCHEM with an unchanged TP of RM11.76/share – based on a P/E multiple of 14x of FY22F earnings, which is in line with its 5-year mean valuation.

Source: Hong Leong Investment Bank Research - 30 May 2022