PCHEM’s 2017 net profit surged 35% yoy to RM4,196m, in line with our forecast but slightly above consensus (102% and 107% of respective forecasts). In a nutshell, higher revenue drove profits on a higher average selling price (ASP) and stronger US$ despite the weaker plant utilisation (FY17: 91% vs FY16: 96%). PCHEM declared a full-year DPS of 27sen (FY16: 19sen), its highest ever. Maintain BUY with a higher TP of RM8.76.

4Q17 in Line With Our Expectations, But Above Consensus

FY17 net profit grew 35% yoy to RM4,196m as revenue increased 26% on the back of the higher product ASP, better sales volume and favorable US$ impact (+3.7%). This was, however, partly mitigated by weaker plant utilisation which decreased 5ppts to 91% due to higher plant turnaround and maintenance activities. EBITDA margin was relatively flat at 39.3%, but the lower effective tax rate, down 6ppts yoy to 16%, drove profitability.

F&M Stole the Spotlight in 4Q

i. Olefins and derivatives (O&D). 4Q17 revenue rose to RM2,969m (+5% yoy; +13% qoq), on the back of an improved product ASP. Plant utilisation was at 98% (-2ppts yoy on higher maintenance activities; +16ppts qoq). EBITDA margin fell 5.4ppts on a lower proportion of ethane products which generally yield higher margins following maintenance activities at its derivative plant.

ii. Fertilisers and methanol (F&M). F&M revenue soared to RM1,813m in 4Q17 (+64% yoy; +29% qoq) driven by a higher product ASP, and additional contributions from the SAMUR plant (from May 17 onwards). In tandem with the better revenue growth, EBITDA margin increased 4.4% yoy to 42.7%.

Reiterate BUY Call With Higher TP of RM8.76

We leave our 2018-19 EPS forecasts unchanged as there were no surprises with the results. Major statutory turnaround and maintenance activities are expected to continue into 2018. We introduce our FY20E EPS at 58.3sen (+9% yoy) but raise our TP to RM8.76 on a higher 17x PER multiple (from 16x), in line with its 5-year forward mean, on our 2018E EPS. Maintain BUY.

Source: Affin Hwang Research - 21 Feb 2018