Petronas Chemicals (PCHEM)’s  FY13 core  earnings  made up only 88% of  both  our  and  consensus  estimates.  The  weak  performance  was largely  on:  i)  longer  than  expected  plant  downtime,  and  ii)  depressed product  prices. We  keep  our  FY14  and  FY15  forecasts unchanged,  as we  expect  operations  to  normalise  by  then.  Maintain  NEUTRAL  and MYR6.48 FV, which is pegged to an unchanged 14x FY14F target P/E.

• FY13  missed  expectations.  PCHEM’s  full-year  core  net  earnings  of MYR3.22bn  made  up  88%  of  both  our  and consensus  estimates.  This miss  was  largely  caused  by  major  maintenance  activities  undertaken throughout  2H13. PCHEM’s plant utilisation rate averaged 78% in FY13, lower than the 90% initially targeted by management.  
• 2H13 hit by major maintenance. 2H13’s letdown was attributable to the longer than expected downtime from  statutory turnaround maintenance activities  at  PCHEM’s  olefins  &  derivatives  (O&D)  division’s  main cracker.  Its  fertiliser & methanol (F&M)  business  was hit by  depressed urea  and  ammonia  prices  caused  by  the  influx  of  supply  from  new facilities.  Meanwhile,  production  difficulties  at  the  group’s  Labuan methanol facility rendered it closed for most of 2H13.  
• Hoping for an end to the bad streak.  The Sabah Ammonia and Urea (SAMUR)  project  hit  a  snag  when  the  vessel  transporting  pertinent equipment  caught  fire.  We  understand  that  the  incident  is  still  under investigation  and  the  impact  of  the  damage  is  still  undetermined.  We opted to be conservative and, hence, did not account for any contribution from  SAMUR  in  FY15.  Unless  new  developments  surface,  we  believe this  project will  be  delayed, with  commercial production only starting  in FY16.
• Maintain NEUTRAL with unchanged MYR6.48  FV. We keep our FY14 and  FY15  forecasts  unchanged,  as  we  expect  operations  to  normalise throughout  those  years. We expect  operations  to  begin  normalising  by 2Q14  and  the  utilisation  rate  to  hit  near  management’s  90%  internal target by then. Having said that, we do not discount the fact that prices of certain products  will  remain at depressed levels  on  supply and demand imbalances.  We  maintain  our  NEUTRAL  call  with  an  unchanged MYR6.48 FV based on an unchanged 14x target FY14 P/E.

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Petronas chemicals Group is a leading integrated petrochemical producer in the South East Asia region.

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Source: RHB