Period  4Q14/FY14

Actual vs. Expectation s  4Q14 results came in slightly below our expectation but in line with market consensus as FY14 core earnings of RM2.73b came below 6%/2% of house/street estimates.  The main discrepancy was mainly due to weaker-thanexpected Fertilisers & Methanol (F&M) earnings on lower plant utilisation rate of 75% vs. our assumption of 80%.

Dividends  8.0 sen NDPS was declared (ex-date: 05/03; payment date: 24/03), totalling FY14 to 16.0 sen which was lower than our assumption of 18.1 sen.

Key Results Highlights  4Q14 reported net profit declined 24% QoQ to RM500m although revenue rose 10%. This was mainly due to RM262m impairment loss relating to the butane-MTBE chain. Ex-EI, 4Q14 core earnings rose 15% QoQ to RM762m. The improved earnings were driven by higher sales volumes and an overall higher utilisation rate of 88% from 75% as methane gas supply improved. However, lower ASP for Olefins & Derivatives (O&D) led the segment’s turnover lowered by 2% while EBITDA inched up 1%. However, the improved methane gas supply boosted F&M’s EBITDA by more than double as revenue surged 51%.

 YoY, 4Q14 core earnings soared 69% on the back of 16% hike in revenue as plant utilisation rate improved to 88% from 66% following the completion of heavy statutory turnaround and maintenance activities. Likewise, plant utilisation rate in FY14 also improved to 80% from 78% following the completion of turnaround in 2H14. However, lower ASP brought FY14 revenue lower by 4% while lower product spreads and the said RM262m impairment loss led to a 13% contraction in core net profit in FY14.

Outlook  Generally, management guided a challenging price outlook for 2015 on additional capacity but likely to rebound in 2016 as demand increases. It expects to achieve better plant utilisation in FY15 as the group plans to undertake statutory turnaround at only two of its facilities. Product pricing may continue to be challenging given the uncertainty in the crude oil and naphtha prices.

Changes To Forecasts  We trim our FY15E/FY16E numbers by 14%/16% as we: (i) revised plant utilisation rate to 85%/86% from 84%/92% for O&D and 76%/80% from 80%/85% for F&Mand (ii) lower ASP.

Rating Maintain OUTPERFORM Valuation  We had decided to revert our targeted CY15 PER to 15x (-1SD 3-year mean) from 13x (valuation for larger cap for oil & gas sector during 1QCY15 Strategy in Dec 2014) following the recovery of crude oil prices of late.

 As such, our new price target is now reduced slightly to RM5.73/share from RM5.79/share previously.

Risks to Our Call  A reversal of the current strong USD/MYR rate, a sudden drop in crude oil prices and an unexpected lower plant utilisation rate. 

Source: Kenanga