PCHEM’s 4Q18 core net profit rose 26% yoy to RM1,285m, above our and consensus forecasts. The deviation was however merely due to a lower-than-expected tax rate. While the share price has notably run up close to our target price over the past 1 month, we maintain our BUY rating as we believe the negatives concerning the recent dip in petrochemical prices have been priced in. The strong recovery in global oil prices since the early part of 2019 and additional volume growth from the RAPID expansion should keep investor at bay. Rolling forward our valuation horizon would give the stock a target price of RM10.50 (implying a 15% upside).

PBT Achieved 102% of Our Estimate, Deviation Due to Lower Tax Rate

2018 net profit grew 22% yoy to RM5,132m on the back of higher revenue, which rose 13%, driven by higher product ASPs and sales volumes, offset by the 6% strengthening in RM/US$. Overall plant utilisation performance was relatively flat at 92% which is commendable. Operationally, results were in line with our forecasts with PBT achieving 102% of our full-year estimate (+8% yoy).

Neutral-to-positive ASPs Supported by Higher Sales Volumes

• Olefins & Derivatives Revenue and EBITDA Rose 9% and 7% Yoy benefiting from higher plant utilisation (100% vs 98% in 4Q17), better sales volume and weakening RM. Product ASP was relatively flat yoy.
• Fertiliser & Methanol revenue increased by a marginal 2% yoy as a result of lower plant utilisation (89% vs 90% in 4Q17) due to higher statutory turnaround activities and lower sales volume. This was supported by a slight improvement in product ASP and weakening RM. EBITDA declined 13% yoy (-6ppts drop in margin) due to higher incurred opex for the maintenance activities.

Maintain BUY

Our 2019E profit is 5% below consensus following our Jan-19 revision in view of the anticipated weaker 1Q19E product prices, due to the ongoing trade talks. We maintain our BUY call, with an unchanged target price of RM9.20 (based on 17x PER). The attraction of the stock lies in 2020, once RAPID’s capacity fully comes on stream. Downside risks: weak product ASPs, weaker product demand and RM strengthening.

Source: Affin Hwang Research - 26 Feb 2019