INVESTMENT HIGHLIGHTS

• Petronas Chemicals Group Bhd’s (PChem) 4Q16 reported earnings surged by +40.2%yoy to RM987m

• Full year FY16 normalised earnings (excluding write-offs) rose by +14.2%yoy to RM3,176m

• Plant utilisation rate (PUR) for FY16 at 96%

• Maintain NEUTRAL with revised TP of RM7.18

Earnings unabated by low ASP. PChem’s 4QFY16 reported earnings surged by +40.2%yoy to RM987m premised on higher revenue (+14.4%yoy) and on lower cost of goods sold (lower unit cost) which declined by -2.9%yoy. The higher revenue was a result of higher production and sales volume, while the lower unit cost is attributable to increase in production efficiency.

Normalised earnings exceed RM3b mark. Excluding the write-offs amounting to RM244m which was in relation with the cancellation of the elastomer project, PChem’s full year FY16 earnings exceeded our and consensus forecasts by a variance of more than >10% at RM3.2b. The company last recorded earnings in excess of RM3b back in FY13.

Olefins & derivatives. The O&D FY16 segment revenue and EBITDA increased by +2.6%yoy and by +18.6%yoy respectively due to full plant utilisation rate (PUR) of 100% compared with that of FY15 at 93%. The company noted that the high PUR offset the decline in production at the propane dehydrogenation and aromatics plants due to statutory turnaround activities. Normalised segment PAT excluding PPE write-offs is at RM2.4b.

Fertilisers & Methanol. Similar to the O&D segment, FY16 segment PUR also recorded improvements to 93% compared with only 80% in FY15. Despite the increase in segment PUR, segment revenue only increased by a modest +1.7%yoy due to low product prices. Consequently, segment EBITDA declined by -1.2%yoy due to lower product spreads.

World-class plant utilisation rate for FY16. PChem’s group plant utilisation rate in FY16 was at 96% due to feedstock supply and reliability. This is above the world-class performance threshold of +85%.

Source: MIDF Research - 21 Feb 2017