2Q19 PATAMI was above our expectation but below consensus estimate, based on our previous FY19 forecast which was 16% below the street’s. The weak earnings yoy was widely expected, but 2Q19 PATAMI exceeding RM1bn was a pleasant surprise. We maintain our HOLD call with a revised target price of RM7.81 (from RM8.30) as we lower our target PE multiple to 16x (from 17x) to factor in the ongoing challenge over the soft global outlook.

2Q19 Results Above Expectations

PCHEM reported PATAMI of RM1.1bn for 2Q19, bringing 1H19 earnings to RM1.9bn, accounting for 58%/49% of our and consensus forecasts. The better-than-expected earnings was due mainly to the stronger Fertiliser & Methonol (F&M) segment which surpassed our forecast, as well as a lower effective tax rate of 9% for 1H19 (vs. our FY19 forecast of 15%).

F&M Supported the Quarter

• Olefins & Derivatives (O&D) revenue and EBITDA fell 15% and 31% yoy respectively, mainly as a result of lower product prices and sales volumes, but this was partly offset by a stronger US$ vs. the Ringgit. Plant utilisation was higher at 97% vs. 88% in 2Q18.
• F&M revenue was less affected as a comparison, down 1% yoy supported by higher sales volumes and the US$, but it was affected by a lower ASP. EBITDA increased by 4% yoy as a result of lower operating expenditure. Plant utilisation was relatively unchanged at 100% in 2Q19 vs. 99% in 2Q18.

Decent 2Q Results, But Likely Weak 3Q

We raise our FY19E EPS by 6% to reflect the stronger 2Q F&M performance. We maintain our HOLD rating with a lower 12-month TP of RM7.81 (from RM8.30), as we imputed in a lower 16x (close to 5-year mean of 15.8x), lowered from 17x previously, to reflect the risk of a further slowdown in global demand as a result of the prolonged trade war.

Risks include any sharp downward movement in product ASPs, weakerthan-expected plant utilisation and global demand.

Source: Affin Hwang Research - 14 Aug 2019