INVESTMENT HIGHLIGHTS

• Petronas Chemicals Group Bhd’s (PChem) 1QFY19 earnings contracted by -24.7%yoy to RM802m

• 1QFY19 PUR sustained at 95% due to good feedstock and asset reliability

• Product volume declined by -5.0%yoy to 2,648MT in 1QFY19

• Average product prices declined on lower global crude oil prices however; offset by weaker Ringgit

• Maintain BUY with revised TP of RM10.43 per share

Sustained PUR at 95% despite turnaround activities. PChems’ 1QFY19 earnings contracted by -24.7%yoy to RM802m. The weaker earning and sales figures are a result of: (i) PUR of 95% vs 100% in 1QFY18 as a result of plant maintenance and statutory turnaround activities and; (ii) lower average selling prices (ASP) due to lower crude oil price. Production volume declined by -5.0%yoy to 2,648MT for 1QFY19 compared with 2,798MT in 1QFY18.

Earnings within expectations. 1QFY19 core earning of RM802m is broadly within ours and consensus expectations at 18% and 17% of FY19 full year earnings estimates respectively. We are expecting PChem’s remaining quarters to perform stronger in line with the recovery of the global crude oil price.

Olefins & derivatives. 1QFY19 segment revenue and profit contracted by -12.9%yoy and -35.9%yoy respectively. Segment PUR was at 100% while average product prices increased by +10% in-line with strong crude oil prices. Ethylene production for the quarter was at 274kMT or +4.2%yoy).

Fertilisers & Methanol. Both segment revenue and profit declined by -25.3%yoy and by -32.3%yoy due to (i) lower average product prices from lower crude oil prices and; (ii) lower PUR at 92% during the quarter due to planned turnaround activity undertaken at both its urea and methanol plants. Urea production was at 662kMT (+3.0%yoy) while methanol production was at 393kMT (-28.3%yoy) mainly contributed by PC Fertiliser Sabah which registered its first fullyear contribution in FY18 since it began commissioning in May 2017.

Source: MIDF Research - 27 May 2019