Period

4Q15/FY15

Actual vs. Expectations

FY15 net profit of RM2.78b came in on the dot of house/street’s estimates.

Dividends

2nd interim NDPS of 10.0 sen was declared, (exdate: 07 Mar; payment date: 23 Mar) totalling FY15 NDPS to 18.0 sen, in line with our expectation, which was higher than 16.0 sen paid in FY14.

Key Results Highlights

4Q15 net profit declined 23% QoQ to RM704m, as revenue slid 5% over the period, on lower product volume due to lower plant utilisation (PU) of 86% from 88% on the back of slightly higher maintenance activities. This was mainly for Olefins and Derivatives (O&D) facilities with PU falling to 95% from 99% while PU for Fertilisers and Methanol (F&M) was maintained at 79%. The decline in topline was mainly driven by ASP, which continued to slide on falling crude oil and naphtha prices.

YoY, 4Q15 net income slid 8% from RM762m in 4Q14 as revenue contracted 12% as the PU was lower than 88% registered in 4Q14 as PU for F&M fell from 84% on methane supply limitation while PU for O&D improved slightly from 93%. ASP also weakened as mentioned above despite higher value in MYR term. YTD, FY15 net profit rose slightly by 2% to RM2.78b despite revenue falling 7%. Again, the improvement in bottomline was driven mainly by higher PU of 85% from 80% whereas the decline in topline was mainly attributed to ASP as a result of steep decline in crude oil and naphtha prices.

Outlook

Management guided O&D to remain soft given slow demand coupled with weak crude oil and naphtha prices while F&M market to remain challenging on weaker demand for Fertilise while challenging methanol price due to weak crude oil prices. Having said that, plant utilisation seen to improve further to 90% in FY16 with similar two statutory turnaround activities. In addition, the new SAMUR facility will start in stages from 1Q16 with the whole facility fully operational by 2H16. This could add 1.2m mtpa of urea and 740,000 mtpa ammonia capacity.

Change to Forecasts

No changes in FY16E and we launch new FY17 estimates which earnings are set to grow at 14%.

Rating

Maintain OUTPERFORM

Valuation

Our price target also maintained at RM7.50/share which is based on 17.3x CY16 PER. (-0.5 SD 3- year mean)

Risks to Our Call

An unexpected lower PU rate while ASP drops sharply.

Source: Kenanga Research - 24 Feb 2016