1QFY22 results came in within expectations. Results were largely flattish QoQ, but earnings jumped 53% YoY due to higher product prices and margin spreads. With product prices normalising, we also expect plant utilisation rates to steadily increase in the coming quarters after turnaround activities during this quarter. The group’s ventures into specialty chemicals could also serve as a long-term catalyst towards more stable margins against market fluctuations. Maintain OP with TP of RM11.00.

1QFY22 within expectations. 1QFY22 core net profit of RM2b came in broadly within expectations at 30%/29% of our/consensus full-year earnings estimates. No dividends were announced, as expected.

Another stable quarter. QoQ, 1QFY22 core net profit saw a mild dip (- 5%), due to weaker fertilisers and methanol (F&M) contributions from slightly weaker product prices. Nonetheless, this was partially offset by the better olefins and derivatives (O&D) performance from higher product prices and margins spreads. Meanwhile, YoY, 1QFY22 earnings saw a jump by 53%, largely driven by better contributions from F&M due to higher product prices. This was partially offset by a drop in O&D following lower production volumes as a result of statutory turnaround and maintenance activities (O&D’s plant utilisation at 75% vs. 101% last year).

Product prices stabilising. Going forward, in tandem with the high crude oil prices, we believe product prices are stabilising given the limited supply from deepening Russian sanctions. Meanwhile, plant utilisation is also expected to be higher in the coming quarters after turnaround and maintenance activities were conducted during the quarter. The Pengerang Integrated Complex is expected to start up by end-2QFY22, and may be a positive earnings contributor heading into 2023 once the plant manages to stabilise utilisations at roughly 80-90%. Over the longer-term, the group’s ventures into specialty chemicals will help stabilise margin spreads amidst market fluctuations as the group intends to grow this segment to reach ~30% of its portfolio by 2030.

Maintain OUTPERFORM, with unchanged TP of RM11.00, pegged to an unchanged PER of 16x, broadly in-line with the stock’s mean valuations. Post results, we made no changes to our FY22-23E numbers.

Based on our study, PCHEM has the highest stock price correlation to Brent crude oil prices within the sector. If anything, given the recent high oil prices, we believe PCHEM can serve as a trading proxy for investors looking for exposure to oil prices within the sector.

Risks to our call include: (i) fluctuations in petrochemical product prices, and (ii) unexpected lower plant utilisation/maintenance.

Source: Kenanga Research - 30 May 2022