Journey to Wealth
Petronas Chemicals Group - BASF pulls out of RAPID
News Petronas Chemicals Group Bhd (PCHEM) announced that the Heads of Agreement (HoA) between Petronas and BASF for a joint speciality chemicals venture within the Refinery & Petrochemical Integrated Development (RAPID) project in Pengerang, Johor, had been terminated by mutual agreement.
This is because both parties were unable to come to an agreement on the terms and conditions for the implementation of the proposed venture.
To recap, the HoA was signed on 5 Mar 2012 for a proposed partnership to jointly own, develop, construct and operate production facilities for a host of speciality chemical products in RAPID.
Comments This is definitely a negative surprise as BASF is the key partner of PCHEM. With the RM60b ETP project still under EIA study, the RAPID project could hit a snag on this turn of event as BASF is a world-leading chemical company.
We understand from PCHEM that this termination of HoA will not affect their existing business ventures. In fact, with this termination, both parties are now looking to expand the capacity at their existing facility in Kuantan.
Meanwhile, the EIA study for the RAPID project is expected to be concluded in June this year.
Outlook We expect no near-term impact on the company's financial performance, but this negative news is likely to affect the sentiment on the share price negatively.
Despite a weak 3Q12, we remain hopeful of a better 4Q12 due to seasonal factors, especially for O&D on restocking activities and this should help support PCHEM's 4Q12 earnings.
Changes To Forecasts No changes to our FY12E-FY14E earnings estimates.
Rating MAINTAIN OUTPERFORM
Valuation We are maintaining our target price of RM6.86/share based on an unchanged CY13 targeted PER of 14.5x. Our targeted PER is in line with its recent PER high of 14.4x in Oct 2011 after normalising from the peak of 20x in Mar 2011.
Risks A weaker USD vs. MYR rate and a sudden drop in crude oil prices.
Source: Kenanga
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