PETRONM’s 1HFY23 results met our expectations. Its 1HFY23 net profit plunged 49% YoY as a higher sales volume was more than offset by a contraction in crack spreads. Its prospects are unexciting with tepid volume growth and subdued outlook for regional crack spreads. We maintain our forecasts, TP of RM4.65 and MARKET PERFORM call.

Within expectation. Its 1HFY23 net profit of RM149m met our forecast, making up 53% of our full-year forecast (there is insufficient market coverage to form consensus estimate).

Results’ highlights. YoY, its 1HFY23 revenue dropped by 16% mainly due to lower oil prices but partially offset by an improved sales volume to 17.8m barrels (+9%). Its net profit plunged by a larger 49% as crack spreads narrowed.

QoQ, its 2QFY23 top line grew 6% as sales volume increased by 14% to 9.5m barrels. However, its net profit fell 63% due to poor crack spreads as well as loss on foreign exchange.

Outlook. Although regional crack spreads have recovered from their lowest points since Nov 2022 as economic activities especially travelling picked up, we believe that they are unlikely to return to their recent peak levels in May-Jun 2022 (which was driven by a combination of refinery capacity shortages, low inventory levels and a surge in demand as the world came out of the pandemic).

Forecasts. Maintained.

We also keep our TP of RM4.65 based on unchanged 5x FY24F PER, in line with average valuation of its closest peer HENGYUAN. Our ascribed valuation is also broadly in line with some of its other listed global refinery peers (e.g. TOA Oil, Phillips 66, HF Sinclair, Valero, Marathon Petroleum). Note that our TP reflected our in-house ESG rating of 2-star (see Page 4), which we attach a 5% discount on our initial valuation.

Overall, we like PETRONM for being one of the two refinery names in Bursa Malaysia that act as a proxy to regional crack spreads. However, its prospects are unexciting with tepid volume growth and subdued outlook for regional crack spreads. Maintain MARKET PERFORM.

Risks to our call include: (i) possible recession dampening demand of petroleum products, (ii) sudden plunge in crude oil prices, and (iii) operational hazards (e.g. fire) that might disrupt capacity utilisation rate.

Source: Kenanga Research - 25 Aug 2023