We expect poorer 3QFY23 QoQ due to: i) Unplanned shutdown from mechanical failure; ii) Mixed changes in product prices but more on the downside. We lower our utilisation rate assumption for F&M segment in FY23 to 85% (previously 90%) and decrease our ASP assumptions for FY23- FY25. Following these changes, we trim our FY23/FY24/FY25 earnings forecasts by 11.0%/8.1%/0.6% respectively. Following the adjustments in our earnings forecasts, we lower our target price to RM7.55/share (previous: RM7.77/share) pegged to 9x CY24 EV/EBITDA. Maintain Hold.

Unplanned Shutdown Due to Mechanical Failure

We understand that PC Methanol (Plant 2) experienced a mechanical failure and had an unplanned shutdown of around 1 month in 3QFY23. As a result, we expect plant utilisation in F&M segment in 3QFY23 to be similar as previous quarter (1QFY23: 97.2%, 2QFY23: 73%). Overall, the full-year utilisation rate is expected to fall below 90% mainly dragged by decrease in utilisation rate in the F&M segment.

Mixed Changes in Product Prices QoQ But More on the Downside

Product prices were relatively mixed across F&M and O&D in 3QFY23. For instance, ASP of ethylene and monoethylene glycol (MEG) were 5.2% and 3.3% lower QoQ, respectively due to subdued demand (Figure 2 and 3). Meanwhile, the ASP of methanol was 5.3% lower QoQ due to higher inventories but that of urea was 15.9% higher QoQ driven by export restrictions in China (Figure 4 and 5). ASPs of specialty chemicals were mixed, with some segments such as automotive showing strong momentum.

Expect Poorer 3QFY23 Results QoQ

Driven by the unplanned shutdown and relatively subdued ASP, we expect 3QFY23 results to be poorer or at best flattish QoQ. The commissioning of Pengerang continues to incur losses but we expect the losses to narrow in coming quarters as production ramps up. Pengerang plants are expected to be commercially operational only next year. Recall that Pengerang commissioning LBITDA in 2QFY23 narrowed to RM70mn from RM100mn in 1QFY23. However, we believe earnings for PCHEM will improve in FY24 on the back of i) recovery in ASP as demand and economy recovers; ii) commissioning of Pengerang petrochemical plants, which would turn to EBITDA from LBITDA iii) improve in overall utilisation rate.

Impact

We lower our utilisation rate assumption for F&M segment in FY23 to 85% (previously 90%) and decrease our ASP assumptions for FY23-FY25. Following these changes, we trim our FY23/FY24/FY25 earnings forecasts by 11.0%/8.1%/0.6% respectively.

Valuation

Following the adjustments in our earnings forecasts, we lower our target price to RM7.55/share (previous: RM7.77/share) pegged to 9x CY24 EV/EBITDA. Maintain Hold.

Source: TA Research - 6 Nov 2023