News

Yesterday, PCHEM announced that it has awarded an EPCC contract for a 900ktpa Polypropylene (PP) Plant in RAPID worth a total of USD482m on a lump-sum basis to a consortium based on competitive bidding.

The consortium comprises of TECNIMONT S.p.A, Huanqiu Contracting & Eng. Corp, TECHNIMONTHQC Sdn Bhd and TechnimontHQC S.c.a.r.I.

Comments

This is the first RAPID contract awarded by PCHEM since its official involvement in RAPID, which was announced early of the month. PCHEM is committed to spend a total capex of USD3.9b with capacity of 2.7mtpa once it is fully operational by 2019.

As such, we expect more EPCC contracts to be awarded soon. This USD482m EPCC contract is expected to be completed by April 2019.

Basically, the contract winner, the consortium consists mainly subsidiaries of: (i) Italy-based Maire Tecnimont S.p.A, and (ii) China-based Huanqiu Contracting & Eng. Corp (HQC). Both companies are world-class EPCC contractors in the petrochemical industry.

We expect management to reveal more information about the entire RAPID project during the briefing this coming Thursday.

Outlook

In the near-term, there is no statutory turnaround expected in 4Q15 while there are two statutory turnaround activities scheduled for 2016 which is the same as 2015. As such, PU is set to improve further to 90% in 2016 which should help to improve earnings further.

Immediate earnings kicker will be the new SAMUR facility which will start by stages from 1Q16 with the whole facility fully operational by 2H16. This could add 1.2mtpa of urea and 740ktpa ammonia capacities. The RAPID project will be a long-term growth story with total new capacity of 2.7mtpa coming on stream by 2019.

Changes To Forecasts

No changes to FY15-FY16 estimates.

Rating

Reiterate OUTPERFORM

Valuation

We maintain our price target of RM7.50/share, based on 17.3x CY16 PER, which is -0.5SD 3-year mean.

Risks to Our Call

An unexpected lower PU rate while ASP drops sharply.

Source: Kenanga Research - 24 Nov 2015