PCHEM solid 3Q18 results was lifted by a rebound in product ASP and lower effective tax rate, pushing core PATAMI up by 38% yoy. However, 4Q18 outlook may not look as rosy with ethylene, polymers, MEG and benzene facing some price pressure, but will remain supported by positive fertiliser and methanol prices. We reiterate our BUY call with a higher target price at RM10.30.

Solid Set of Numbers

3Q18 PATAMI came in at RM1,257m (+38% yoy), bringing cumulative 9M18 to RM3,847m (+21% yoy), which surpassed expectations, coming in at 86% and 88% of our and consensus forecast respectively. The better than expected results was lifted by stronger product ASP and a lower-thanexpected effective tax rate, following the reversal of prior year overprovision.

Positive ASP Prices Offset Weaker USD and Higher F&M Turnaround

• Olefins & Derivatives Revenue and EBITDA Rose 20% and 13% driven by better ASP, higher plant utilisation (96% vs 82%) as a result of lower turnaround at its cracker and related downstream facilities.
• Despite a heavier turnaround activities in the Fertiliser & Methanol Segment for Its Urea and Methanol Plant, Revenue Was Up 20% Yoy supported strongly by better product ASP. This led to an EBITDA increase of 15%.

Revising Our Numbers

We raised our FY18E forecast by 7% to reflect the stronger 3Q18 earnings as ASP rebounded together with better Brent prices - average prices up 1% qoq and 45% yoy. We also lower our effective tax rate from an earlier assumption of 15% to 12% following the one-off reversal. We also tweaked our FY19E estimates slightly by 3%.

Maintain BUY

We continue to like PCHEM for its long-term RAPID capacity expansion story coupled with likelihood of margin expansion with a higher oil price environment. We maintain our BUY call and raise our 12-month TP to RM10.30 (from RM10.00), based on unchanged 17x PER on higher FY19E EPS. Downside risks include declines in product ASPs, lower plant utilisation and weaker product demand.

Source: Affin Hwang Research - 19 Nov 2018