• 4Q20 core PATAMI was above our/consensus expectations; full year accounted for 110% and 118% of respective full-year estimates
• Headline profit was affected by a RM232m impairment charge as a result of winding up its Butanediol plant
• Raise 2021E EPS to factor in a stronger 1Q21 on petrochemical price recovery. Target price raised to RM6.50 (from RM5.80). Reiterate Sell

Results Above Expectation

2020 headline profit fell 42% yoy, after taking into account the RM232m impairment charge for the closure of its 40% stake Butanediol plant, as guided. Excluding one-offs, 4Q20 core PATAMI stood at RM698m, bringing full-year 2020 to RM2bn (-30% yoy). Results were above our/consensus estimates, as margins from the F&M segment positively surprised. 2020 revenue fell 12% yoy as COVID19 had resulted in a 4% decline in sales volume and lower ASPs in general. PCHEM was able to sustain higher plant utilization at 94% (2019: 92%) due to lower statutory plant turnaround in 2020. However, 2021 and 2022 are expected to see another heavy plant turnaround year, targeting 5 plants/year. Meanwhile, the RAPID plant, targeted to start up in 2H21, after numerous delays, has an internal target to turn it EBITDA positive in 2022.

Segmental Breakdown

• Olefins and Derivatives (O&D) revenue declined 17% yoy as higher statutory plant turnaround (plant utilization: 93% vs. 98%) has resulted in lower production and sales volume, coupled with weaker ASP. EBITDA jumped 60% yoy despite the lower revenue, on the back of lower operating expenditure.
• Fertilizer and Methanol (F&M) revenue increased 4% yoy on the back of higher ASP and plant utilization (94% vs 83%). Similarly, EBITDA soared 40% yoy on the back of better product margin, improving by 12ppts to 44.7%.

Reiterate Sell

We raise 2021E EPS by 12% to factor in the stronger 1Q21 product prices, particularly on the F&M front. We expect 2Q21 prices to subsequently soften as the winter supply disruption should be resolved by then. We also raise 2022E EPS by 3% after adjustments on some ASPs. We raise our TP to RM6.50 (from RM5.80) based on unchanged 18x PER, but reiterate our Sell rating on our view that 1) RAPID start-up will be a drag, 2) heavy plant turnaround in the coming 2 years will dampen recovery, 3) the gradual commissioning of new capacities will put pressure on petrochemical prices, and 4) valuation appears lofty at 20x.

Source: Affin Hwang Research - 24 Feb 2021