1Q18: In Line; 100% Plant Utilisation

PCHEM’s 1Q18 core PATAMI fell 6% yoy to RM1,218m, in line with our and consensus forecasts, accounting for 30% of our respective forecasts. YoY, revenue was higher lifted by a more favourable product ASP and higher plant utilisation, but EBITDA margin contracted due to the RM appreciation and higher manpower cost. Cash levels jumped 25% against end Dec-17 following the sale of PRPC Polymer. We maintain our BUY call with a higher TP of RM9.60.

Higher Plant Utilisation and ASP Offset Strength in RM

1Q18 revenue grew 6% yoy on the back of a better F&M performance, mainly driven by the commencement of PC Fertiliser Sabah plant. EBITDA margin was down 4.2ppts yoy due to a weaker US$ and higher manpower cost as a result of under accruals in 2017, but this was partly mitigated by the better spread and sales volume. We expect 2H18 earnings to be weaker on the back of heavier turnaround activities (4 plants in total) with full-year plant utilisation targeted to achieve the low 90s.

F&M Segment Shines, Overshadowing O&D

i. Olefins and derivatives (O&D). 1Q18 revenue declined 2% yoy to RM3,155m impacted by the stronger RM, partly offset by the higher ASP. EBITDA declined 17% on a weaker margin (-6.4ppts) due to a higher manpower cost. Plant utilisation was unchanged at 100% yoy.

ii. Fertilisers and methanol (F&M). F&M revenue leapt 25% yoy to RM1,831m, mainly driven by PC Fertiliser Sabah which commenced operation in May-17. In tandem with the revenue increase, EBITDA soared 25% yoy. However, margin was relatively flat yoy at 42.5%. Plant utilisation was 4% higher, achieving 100%. Excluding PC Fertiliser, the F&M segment would still see growth supported by both higher product ASP and plant utilisation.

Reiterate BUY Call With Higher TP of RM9.60

We leave our 2018E EPS unchanged but raise our 2019-20E EPS by 5%- 6% on higher product ASP assumptions. We raise our 12-month TP to RM9.60 (from RM8.76) on an unchanged PER target of 17x on our rolled forward 2019E EPS. Reiterate BUY. Downside risks include declines in product ASPs, lower plant utilisation and weaker product demand.

Source: Affin Hwang Research - 22 May 2018