INVESTMENT HIGHLIGHTS

• Petronas Chemicals Group Bhd (PChem) divesting 50% stake of PRPC Polymers to Saudi Aramco unit

• 50%-stake valued at USD0.9b (~RM3.8b)

• PRPC Polymers’ products include HDPE, LLDPE, PP and MEG (glycol)

• Divestment beneficial to PChem as it strengthens its financial position

• Maintain BUY with unchanged TP of RM8.18 per share

Divestment of PRPC Polymers. PChem will be divesting its 50% stake in PRPC Polymers to Saudi Aramco’s wholly-owned unit Aramco Overseas Holdings Coöperatief U.A for USD0.9b (approximately RM3.8b). The deal is to be closed by 15th March 2018.

Background on PRPC Polymers. PRPC Polymers principal activities are to develop, construct, commission and operate polymers and glycol plants. The new products which are underway are HDPE, LLDPE, PP and MEG (glycol). The estimated total investment costs as at August 2017 is at approximately USD3.2b. The project is at 49% completion. Upon completion, the plants’ capacity will be approximately 3,050MTA of the above mentioned products. Currently, USD1.2b has been spent on the projects and the amount is expected to touch USD1.8b by 15 March 2018. The divestment consideration is largely based on the amount to be spent as at 15 March 2018 (50% of capex spent).

Positive on partnership. We are positive on the divestment as PChem will now have the financial and technical support of a strong oil major. As part of the deal, Saudi Aramco will be supplying up to 70% of the crude oil requirement to PRPC Refinery & Cracker which will provide feedstock supply to PRPC Polymers. In addition, the 50% participation by Saudi Aramco will help alleviate any financial strain on PChem’s balance sheet for future heavy capex requirements. Post completion of the divestment, PRPC Polymers will be consolidated as

Joint Operations on an equity accounting basis.

Impact on financials. No immediate impact on earnings on company. However, PChem noted that PRPC Polymer will probably incur some bridge financing of approximately RM2.3b.

Recommendation. We are maintaining our BUY recommendation on PChem with an unchanged TP of RM8.18 per share. Our target price is based on a sector average of 15x pegged to EPS18 of 54.5sen.

Source: MIDF Research - 4 Oct 2017