1Q15
Although 1Q15 net profit of RM605m made up only 20% of our FY15 estimates, we deem the results as largely in line with our expectation given that the crude oil price is recovering steadily of late to around USD70/bbl from the low of USD46/bbl. Against consensus estimates, the RM605m net profit accounted for 23% of full-year estimate.
No dividend was declared in 1Q15, as expected.
Despite plant utilisation (PU) rising further to 90% from 88%, 1Q15 core net profit fell 21% QoQ to RM605m on the back of 20% dip in revenue as ASP was lower following the sharp decline in crude oil prices when the Brent hit new low at c.USD46/bbl in early January. As such, both EBITDA for Olefins & Derivatives (O&D) and Fertilisers & Methanol (F&M) fell 26% and 6% respectively. On the positive side, production and sales volumes improved which in line with higher PU. This led to an improvement at group’s EBITDA margin to 36% from 34% on efficiency gains.
YoY, 1Q15 core earnings contracted 19% from RM748m as topline declined 17% although PU surged from 80% to 90%. The strong PU was due to the absence of statutory turnaround activity in 1Q15 vs. one turnaround at the urea plant last year. As such, EBITDA for F&M segment rose 18% as PU jumped to 87% from 67% previously. However, the overall group earnings were dragged down by O&D unit as ASP fell sharply following the plunge in crude oil prices. In addition, O&D had a better PU of 97% in 1Q14 vs. 95% in 1Q15, which led to slightly better production and sales volume.
Generally, management guided a challenging price outlook for 2015 as crude oil prices have yet to settle at a comfortable level. However, price outlook for 2Q15 alone is improving for O&D segment, especially for polymers on the back of stronger feedstock prices. However, the outlook for F&M segment remains challenging especially for urea and ammonia on supply issue. Changes To
We keep our estimates unchanged for now.
Maintain OUTPERFORM
We decided to upgrade our targeted PER to -0.5SD 3- year mean of 16x from -1SD 3-year mean of 15x given the improved crude oil prices. In fact, this new valuation is not excessive as opposed to its 3-year mean of 17x.
As such, with rolling over the valuation-base year to CY16 from CY15, our new price target is now raised to RM6.37/share from RM5.73/share previously.
A reversal of the current strong USD/MYR rate, a sudden drop in crude oil prices and a lower PU rate.
Source: Kenanga Research - 8 May 2015
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