Period  3Q13/9M13

Actual vs. Expectations At 71% and 69% of our as well as consensus’ full year FY13 estimates, Petronas Chemicals Group Bhd (PCHEM)’s 9M13 net profit of RM2.69b is slightly below expectations.

 Contributing factor are skewed sales volume and lower plant utilisation as the main cracker and related downstream facilities for Olefins & Derivatives (O&D) were under maintenance.

However, product prices improved QoQ, based on Bloomberg data.

Dividends  No divided was declared in 3Q13, as expected.

Key Results Highlights 3Q13 net profit declined 34% QoQ to RM635m, thenlowest quarterly earnings in three years, from RM958m no thanks to the maintenance activities. This led to a drop in plant utilisation and hence sales volume, which also reflected in a lower EBITDA by 34% and revenue by 9%. O&D’s 3Q13 EBITDA margin deteriorated to 28% from 36% in 2Q13 asn EBITDA contracted 25% while revenue slid 4%. EBITDA for Fertilisers & Methanol (F&M)’s also plunged 45% as revenue dipped 20%.

 YoY, 3Q13 net profit fell 14% from RM742m in 2Q12 while revenue declined 10% over the year, due to the same reason stated above. O&D reported lower revenue by 9% and EBITDA by 16% albeit on healthier downstream demand. Likewise, F&M also posted lower revenue (-15%) and EBITDA (-21%) on lower ASP.

 Despite revenue dipping 3%, the YTD 9M13 net profit grew 3% to RM2.69b from RM2.61b last year, largely due to lower financing cost. Both O&M and F&M recorded higher EBITDA by 1% and 6% as the former benefited from improved product spreads while the latter was driven by higher availability of system volume.

Outlook  Although PCHEM’s 3Q13 was hit by maintenance, petrochemical prices picked up in 3Q13 and this

seasonal trend is expected to continue into 4Q13. As such, without the 3Q13 maintenance activities, the upcoming 4Q13 is likely to be better.

Changes To Forecasts    Following the weak 3Q13 results, we have trimmed FY13 estimate by 5% as we lowered plant utilisation for O&D to 93.7% from 95.1%. However, we keep our FY14 estimates unchanged.

Rating Downgrade to MARKET PERFORM from OUTPERFORM

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

 Although the current share price is ahead of our target price, our new MARKET PERFORM is based on its decent yield and its index weighting.

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

Source: Kenanga