Period  1Q14

Actual vs. Expectations Although 1Q14 net profit rebounded by 66% QoQ to RM749m, this only accounted for 20% of our fullyear estimates and 21% of market consensus.

 However, we deem this result to be within our expectations as forward earnings are likely to be better especially from 2H14 onwards as the heavy maintenance activities will be completed in 2Q14.

Dividends  No dividend was declared as expected.

Key Results Highlights 1Q14 net profit leapt 66% QoQ from RM450m in the preceding quarter as revenue grew 14% over the quarter. The significant improvement in earnings was mainly due to higher plant utilisation rate of

80% from 66% following the completion of maintenance at its main cracker and the related downstream facilities for Olefins & Derivatives (O&D) in 4Q13. As such, O&E’s EBITDA doubled as plant utilisation recovered to 97% from 67%.

However, plant shutdown in methanol plant 2 (partly due to gas supply constraints) and urea plant in Bintulu (under statutory turnaround) kept Fertilisers & Methanol (F&M)’s plant utilisation low at 67% from 65%. Given improved volume and better ASP, EBITDA for F&M rose 36% as revenue grew 21%.

 On a YoY comparison, the 1Q14 net profit contracted 32% over the year from RM1.11b due to lower business volumes and softening ASP for both segments. O&D faced slightly higher maintenance activities, reducing its utilisation to 97% from 99%. This reduced its revenue by 10% and coupled with softening ASP, the segment’s EBITDA declined 26% YoY. Besides weakened ASP, the two plant shutdown mentioned above at F&M depressed its utilisation rate to 67% from 88% previously. As such, this segment's revenue declined 27% while EBITDA contracted 33%.

Outlook  The heavy maintenance activities, which started in 3Q13, will be completed by 2Q14, thus earnings should recover from 2H14 onwards. However, 2Q14 earnings are expected to be weaker than 1Q14 as two F&M facilities (second small cracker and MTBE plant) will go through statutory turnaround and one of its F&M’s aromatics plants will undertake maintenance.

 Although there will be another statutory turnaround for O&M’s smaller methanol facility in 3Q14, the impact is likely to be insignificantly given the size of the plant and it has another bigger plant as backup.

Changes To Forecasts    We keep our FY14-FY16 estimates unchanged fornow.

Rating Maintain OUTPERFORM

Valuation  TP is maintained at RM7.31/share, based on CY15 15x PER (the highest band of PER since Mar-12)

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

Source: Kenanga