Period  2Q13/1H13

Actual vs. Expectations  Above expectations. The group reported 1H13 net profit of RM2.06b which makes up 55% of our full-year estimates and 53% of the market consensus. The expected weaker QoQ 2Q13 came in above expectations as the decline in product prices was better-than-expected.

Dividends  A 8.0 sen NDPS was declared in 2Q13 which is the same as in 2Q12.

Key Results Highlights  2Q13 net profit contracted 13% QoQ to RM958m as revenue declined 13% due largely to lower sales volumes and product prices. Olefins & Derivatives (O&D)’s EBITDA margin deteriorated to 36% from 38% as 2Q13 EBITDA fell 16% to RM1.01b while revenue dropped 12% over the quarter. Fertilisers & Methanol (F&M)’s EBITDA declined 8% to RM550m as revenue dipped 11%.

 YoY, 2Q13 net profit rose 12% from RM855m despite revenue declining slightly by 1%, due to lower maintenance activities at F&M and improved spreads arising from lower feedstock prices at O&D. F&M reported lower revenue by 6% due to lower ASP despite higher sales volume achieved. However, both O&D and F&M posted higher EBITDA by 16% and 13% respectively.

 YTD, 1H13 net profit rose 10% to RM2.06b from RM1.87b while revenue gained 1% YoY. This again is mainly due to lower feedstock cost and higher ASP compared to a year ago. Both O&M and F&M reported EBITDA growths of 9% and 16% respectively.

Outlook  After a soft 2Q13, petrochemical prices have started to pick up in 3Q13 which is in line with their seasonal trends. As such, the upcoming 3Q13 is likely to be stronger QoQ. In addition, the weakening of MYR is in PCHEM’s favour which should augur well for its 3Q13 results.

Changes To Forecasts   We are maintaining our FY13-FY14 forecasts for now.

Rating Maintain OUTPERFORM

Valuation  Our price target is maintained at RM6.97/share, based on CY14 14x PER which is its 2-year average valuation.

Risks  A reversal of the current strong USD/MYR rate and a sudden drop in crude oil prices.

Source: Kenanga