Period     1Q13

Actual vs. Expectations     The 1Q13 results were above expectations with the net profit of RM1,105m making up 29% of our FY13 full-year estimate as well as that of the market consensus. 

The stronger-than-expected set of results was mainly attributed to higher product prices, lower feedstock costs and an improved operational efficiency.

Dividends    No dividend was declared as expected 

Key Results Highlights   The 1Q13 net profit surged 23% QoQ from that of RM988m in 4Q12 on the back of a 2% hike in revenue on higher product prices coupled with lower feedstock costs. This was despite a lower sales volume as the local vinyl facility had ceased operations. The rise was also reflected in its Fertilisers & Methanol (F&M)’s EBITDA, which rose 5% to RM599m, although its revenue dipped 6%. Likewise, the EBITDA for Olefins & Derivatives (O&D) soared 26% to RM1,193m on better petrochemical prices as its revenue rose 3%. Note also that the last 4Q12 results included a RM490m one-off expense for the discontinuation of the vinyl business.

On a YoY comparison, the 1Q13 net profit grew 8% from that of RM1,019m a year ago while the revenue inched up by 2%. O&D reported a slight improvement in its EBITDA by 3% from RM1,155m thanks to product prices, which were broadly higher on cost-push factors even though the revenue here dipped 2% on a lower sales volume. F&M saw its 1Q13 revenue leapt by 12% on a higher sales volume due to the improved gas supply at its methanol facilities. A tight supply situation has also led to better product prices, which was reflected in the division’s EBITDA expanding 20% from RM500m. 

Outlook    Petrochemical prices have come off in 2Q13 as compared to in 1Q13 as the supply and demand levels in the recent quarter were more balanced. As such, the upcoming 2Q13 is likely to be weaker QoQ. However, this is not alarming given that the 1H is usually the seasonally low period and 1Q13 was an unexpected strong quarter. We are maintaining our FY13-FY14 forecasts for now.

Changes To Forecasts

Rating  Maintain OUTPERFORM

Valuation     We have rolled over our valuation base year to CY14 from CY13 with a lower targeted PER of 14x (2-year average) from 14.5x (the recent high in Oct 2011). Thus, our new target price is now RM6.97/share from RM6.86/share previously. 

Risks    A weaker USD vs. MYR rate and a sudden drop in crude oil prices.

Source: Kenanga