Petronas  Chemicals  Group  (PCHEM)’s  9MFY13  results  came  in  below our/consensus  estimates,  at  62%/68%  of  the  respective  full-year forecasts.  9MFY13  core  net  profit  improved  only  slightly  y-o-y  due  to weaker sales volume in  the  O&D and F&M  segments.  This prompts us to cut our FY13-14 earnings estimates by 17%/21%. Maintain NEUTRAL, with a lower MYR6.48 FV (from MYR6.55), based on a 14x FY14 P/E.

• Marginal  improvement.  PCHEM’s  9MFY13  net  profit  improved marginally  by  1.4%  y-o-y  to  MYR2.7bn,  after  excluding  net  foreign exchange  gain  of  MYR44m.  The  subdued  growth  was  partly  attributed to:  i)  a  slightly  higher  effective  tax  rate  of  24.1%  vs  9MFY12’s  23.6%, and ii) higher minority interest contribution of 11.4% vs 9MFY12’s 8.9%.
• Poor performance  in  both business segments.  The group’s olefins & derivatives (O&D) and fertilisers & methanol (F&M)  segments performed poorly  in  9MFY13,  mainly  due  to  weaker  sales  volume.  The  O&D segment  suffered  lower  production  volume  as  its  main  cracker  and related downstream facilities undertook major maintenance in 3QFY13. Meanwhile, its F&M  segment was mainly dragged  down by weaker urea prices  amid  excess  global  supply.  Management  had  shared  previously that it was seeing a steep urea price decline from June to Aug 2013 , due to surplus volume arising from China’s lower export tax on urea .
• Likely  to  miss  FY13’s  target  utilisation  of  90%.  Its  9MFY13  overall performance  indicates  the  likelihood  of  the  group  missing  its  target utilisation rate of 90%. Management had earlier guided that its utilisation rate would only hit 80% in 3QFY13 due to maintenance  works at its main cracker.
• Maintain NEUTRAL,  with  lower  MYR6.48  FV.  We lower our FY13-14 earnings estimates  by  17%/21% respectively in light of: i) weaker O&D sales  volume  due  to  lower  production  volume,  and  ii)  a  challenging environment  due  to  increased  O&D  and  F&M  capacity  by  PCHEM’s overseas competitors.  Based on yesterday’s closing price, the stock still offers a decent estimated dividend yield of 3.2%.

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Company Profile
Petronas chemicals Group is a leading integrated petrochemical producer in South-East Asia.

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Source: RHB