PCHEM registered a decent 2Q22 core net profit of RM1,846m (-12% QoQ, -2% YoY), bringing 1H22 sum to RM3,825m (+19% YoY). We deem the results to be within expectations at 57% and 50% of ours and consensus full-year forecasts respectively as our findings have indicated that product spreads (HDPE, LDPE, LLDPE, urea and methanol) have come off from its respective peaks in 1H22. Also, we highlight that (i) acquisition of Perstorp is expected to be completed in Oct 2022; and (ii) China’s potential reopening will help bolster PCHEM’s product spreads and earnings in 4Q22 and with that, we believe that the group is on track to have yet another good year 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 – in line with its 5-year mean valuations.

Deemed within expectations. PCHEM registered a decent 2Q22 core net profit of RM1,846m (-12% QoQ, -2% YoY) and 1H22 sum of RM3,825m (+19% YoY) – after having adjusted for: (i) RM45m amortisation of deferred income; (ii) RM54m fair value gain; and (iii) RM33m on inventories written back to net realisable value. Conservatively, we deem the results to be within expectations at 57% and 50% of ours and consensus full-year forecasts respectively as our findings have indicated that product spreads (HDPE, LDPE, LLDPE, urea and methanol prices) have come off from its respective peaks in 1H22 – see Figures #1 and #2.

Dividend. First interim dividend of 25.0 sen was declared in 2Q22 – which was well expected. Ex-date: 8 Sept 2022, payment date: 21 Sept 2022.

QoQ. Revenue and core profit dipped 1% and 9% QoQ respectively in 2Q22 mainly due to: (i) lower plant utilisation at 72% (vs. 87% in 1Q22) due to heavy turnaround activities throughout the quarter for two of its largest plants: PC Fertiliser Sabah plant and PC Methanol Plant 2. Bloomberg data shows that average polyethylene prices remained somewhat stable QoQ, ranging from +3% to +4% while average urea and methanol prices dipped slightly throughout 2Q22 at -7% and -3% QoQ.

YoY. Core profit was flat (+1% YoY) despite a drop in F&M segment’s profits by 13% YoY due to the heavy turnaround and maintenance activities as mentioned above, but was pretty much cushioned by what we suspect to be a spike in profits in PCHEM’s specialty chemicals segment.

YTD. Core profit increased significantly by 20% YoY in 1H22 mainly due to: (i) elevated urea and methanol prices in 1H22 at +84% and +18% respectively, which boosted its F&M segment’s profits by a good 36% YoY.

Outlook. While product spreads have come off from its peak in 2Q22, we view that PCHEM should still register strong quarters ahead with no more major planned plant turnarounds in 2022 and has guided a targeted blended utilisation rate of at least 90% for the year (YTD: 72%). Also, we highlight that (i) acquisition of Perstorp is expected to be completed in Oct 2022; and (ii) China’s reopening will help bolster PCHEM’s product spreads and earnings in 4Q22 and with that, we believe that PCHEM is on track to have yet another good year in FY22.

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 - 23 Aug 2022