Journey to Wealth
Petronas Chemicals Group - Discontinuing its Vinyl business
News Petronas Chemicals Group Bhd (PCHEM) announced that it is discontinuing its vinyl business effective 01 Jan 2013.
Currently, PCHEM's vinyl business manufactures and sells two key products namely vinyl chloride monomer (VCM) and polyvinyl chloride (PVC). Three plants will be affected, namely the VCM (capacity: 400k/mtpa) and PVC (180k/mtpa) plants in Kertih Integrated Petrochemical Complex and a PVC (100k/mtpa) plant in Vung Tau, Vietnam.
It will initiate a divestment process for the sale of its 93.1% interest in the Vietnamese PVC plant while the Malaysian plants will commence their decommissioning activities after 1 Jan 2013, with the process likely taking 2-3 years to complete.
PCHEM's rationale of discontinuing the business is that the vinyl business performance is not satisfactory as compared its other segments, in addition to it not being closely integrated within PCHEM's product value chain.
Comments This exercise is expected to impact PCHEM's earnings negatively in the near term but the outcome should be positive in the longer run as the group could focus on its other high margin products that are more closely integrated within its product value chain.
PCHEM is expected to record a charge of c.RM560m in 4Q12 relating to decommissioning, contract termination and impairment expenses.
This will reduce our FY13-14E reported earnings by c.6% as the business volume will fall by 5%.
Outlook Petrochemicals prices are on the rise due to seasonal factors in the current 2H, especially for O&D on restocking activities, which should help support PChem's 2H12 earnings.
Changes To Forecasts
No changes to FY12E core earnings as we are not factoring in the non-core RM560m one-off charge.
FY13-14E earnings estimates have been cut by c.6% as we removed all the VCM capacity while accounting for a c. 26% fall in the PVC production capacity.
Since our FY13-14E dividend payouts are maintained at 50%, our GDPS will fall by c.6% following the above, implying 5.0%-5.3% yields.
Rating MAINTAIN OUTPERFORM
Valuation Lower price target of RM6.99 (from RM7.46), post earnings revision and unchanged targeted CY13E PER of 14.5x. The targeted PER reflects the recent PER highs in Oct 2011, after normalising from Mar 2011 peak of 20x.
Risks A weaker USD vs. MYR rate and a sudden drop in crude oil prices.
Source: Kenanga
Related Stocks
| Chart | Stock Name | Last | Change | Volume |
|---|
Market Buzz
2024-11-23
PCHEM2024-11-23
PCHEM2024-11-22
PCHEM2024-11-22
PCHEM2024-11-22
PCHEM2024-11-21
PCHEM2024-11-21
PCHEM2024-11-21
PCHEM2024-11-21
PCHEM2024-11-21
PCHEM2024-11-21
PCHEM
2024-11-21
PCHEM2024-11-21
PCHEM2024-11-21
PCHEM2024-11-20
PCHEM2024-11-18
PCHEM2024-11-15
PCHEM2024-11-14
PCHEM2024-11-13
PCHEMMore articles on Journey to Wealth
Ekovest: No plan to launch another offer for Iskandar Waterfront City
Created by kiasutrader | Mar 29, 2018
Kenanga Research - On our Portfolio - Parliament dissolution around the corner?
Created by kiasutrader | Mar 25, 2013
Plantation Sector - Proposed accounting standard scrapped OVERWEIGHT
Created by kiasutrader | Mar 25, 2013
Pavilion Reit - Limited upside, earnings upside have been priced in HOLD
Created by kiasutrader | Mar 25, 2013
Discussions
Be the first to like this. Showing 0 of 0 comments
Post a Comment
Featured Posts
Introducing MY's First IPO Fund for Sophisticated Investors!
New Update. Discover investment communities that resonate with your ideas
M & A Value Partners IPO Equity Fund has been launched - Targeted 13% Return p.a
Latest Videos
Apps
Top Articles
2
3
BFM Podcast
4
5
BFM Podcast
6
Koon Yew Yin's Blog
CPO price is rising rapidly as shown by chart below - Koon Yew Yin
7
Axcapital's investment blog
KAB - Executing its way to a record quarter. Could more Petronas contracts be coming?
8
Mercury Securities Research
#
Stock
Score
Daily Stocks
Stock Name
Last
Change
Volume
Stock Name
Last
Change
Volume
Stock Name
Last
Change
Volume
Featured Advertisers / Partners
Ride The Bull Short The Bear
CS Tan
4.9 / 5.0
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
