INVESTMENT HIGHLIGHTS

• Petronas Chemicals Group Bhd (PChem) approves FID for Isononanol plant

• Total investment cost of project is USD442m (approximately RM1.9b)

• Plant expected to be operational by 2HFY19

• PChem’s balance sheet can comfortably fund project as cash hoard is at RM7.4b with negligible borrowings

• Maintain NEUTRAL with unchanged TP of RM7.18

FID approved. PChem announced that it has approved the final investment decision (FID) for an Isononanol plant within the Pengerang Integrated Complex in Pengerang Johor. The total investment cost is USD442m or approximately RM1.9b. The project is slated to be on-stream by 2HFY19.

Details of plant. The company guided that isononanol is an oxoalcohol which is mainly used for the production of Diisononyl phthalate, a high molecular weight phthalate plasticizer which is widely used in industrial applications such as automotive, wires and cables, floorings, buildings and constructions. The company further noted that proposed plant will have a production capacity of 250,000 tonne per annum. Regionally, the latest isononanol plant is in Maoming, China, completed in December 2015, jointly developed by BASF and China Petroleum & Chemical Corporation (50-50 basis). This plant has an annual production capacity of 180,000MT per annum.

Impact on earnings. No change to our short term earnings estimates.

Funding. With a cash hoard of USD7.4b and negligible gearing, we do not foresee any issues pertaining to the funding for this isononanol plant.

Cautiously optimistic on FY17 earnings. At the group level, we remain cautiously optimistic on FY17 earnings estimates as there will be more turnaround activities in FY17 in particular in Kertih (2-3Q17) which could take between 50-55 days. The PUR for FY17 is expected to be approximately 87-90% – above the world-class standard but expected to lag that of FY16

Recommendation. We are maintaining our NEUTRAL recommendation on PChem with an unchanged target price of RM7.18 per share. Our target price is premised on a target PER17 of 17.9x pegged to EPS17 of 40.1sen. The target PER17 for the company is based on its average quarterly rolling PER since its listing. It is however worthwhile noting that PChem’s PER is a premium over its regional competitor’s average PER of only 14x due to the company’s relatively cheaper and more reliable feedstock advantage from PETRONAS

Source: MIDF Research - 19 Apr 2017