Petronas Chemicals; Hold; RM6.75
Price target: RM6.15; PCHEM:MK

Yesterday’s Petronas Chemicals (PCHEM) analyst briefing shed further light on 4Q13 financial performance. During the quarter, the Olefins & Derivatives (O&D) segment continued turnaround maintenance activities at its main cracker and related downstream facilities.

O&D also experienced utilities supply interruption at the main cracker, related downstream facilities, the Group’s aromatics and ammonia plants. This caused plant utilisation to fall by 27 ppts y-o-y to 67%.

The Fertilisers & Methanols (F&M) segment also undertook heavy maintenance activities and suffered from limited gas supplies at its methanol plant causing plant utilisation to fall by 19 ppts y-o-y to 65%. F&M was not helped by weaker Urea and Ammonia prices, although Methanol prices rebounded amid regional supply shortage.

O&D plant utilisation should improve in FY14 as the main cracker resumes production. However, there will be some drag from turnaround activities at the smaller ethylene cracker and MTBE plant, as well as maintenance at the aromatics plant. For F&M, heavy maintenance work is scheduled at the smaller fertiliser and methanol facility. Also, the idle methanol plant is currently in the commissioning stage and the management has indicated that production should resume by next week.

Meanwhile, PETRONAS is likely to achieve final investment decision on the massive RM60bn RAPID project in Pengerang over the next few months. We believe that PCHEM will play a critical role in the RAPID project once the petrochemical hub takes off given the extensive petrochemical operations involved.

PCHEM’s SAMUR project, initially scheduled for completion by end-2015, has been delayed. The fire incident is still under investigation for a clearer indication of delay period and possible insurance claims.

We maintain our HOLD call with RM6.15 TP, pegged to 13x FY14 EPS.

Source: HwangDBS Research - 12 Feb 2014