Huge pressure to close petrochemical plants as global overcapacity grows Will Beacham
07-Nov-2023
BARCELONA (ICIS)–As waves of new capacity come onstream in China and the Middle East, stagnant demand growth and falling margins are increasing pressure on chemical companies to permanently close older facilities.
Wave of oil-to-chemicals projects will flood market Global operating rates forecast at 80% to 2030, from 88% long term average Huge pressure on non-integrated/high-cost facilities to close More plant closures could be driven by high costs, low demand, decarbonization High closure costs include environmental cleanup, redundancy payments Upstream integration to refineries prevents closures Chemical industry could reinvent itself as service provider Q3 Europe margins low or negative Q4 margins improve as oil prices fall No sign of improvement in downstream demand
Following several years of significant investment in production capacity in China, a perfect storm is hitting the chemicals market, as increased global capacity meets weakening demand. The global oversupply of petrochemicals is expected to hit a record 218m tonnes in 20231 and China is continuing to add capacity, with almost 140m tonnes expected to come onstream in 2023, well in excess of previous years.
Against the backdrop of a worsening macroeconomic outlook and a strong US dollar, chemical market participants are having to contend with an unprecedented level of uncertainty within the industry.
HafizAjiad98 Sama-sama kita untung dr Pchem, Mabel 🤗 22/01/2024 7:30 PM
Yes Hafiz, PCHEM has been a darling...
Nowadays everybody is chasing for YTLPOWER. Little they know that stock has already reached it's peak and neglecting our PCHEM, which is good..
PCHEM is Petronas Chemicals Group Berhad, a leading integrated chemicals producer in Malaysia and Southeast Asia. YTLPOWER is YTL Power International Berhad, a diversified utility company that operates in power generation, transmission, water and sewerage services, communications, and education.
One way to measure the strength of a company is to look at its profitability, which can be assessed by indicators such as return on equity (ROE), earnings per share (EPS), and dividend yield (DY). Based on the latest available quarterly reports, here are the values of these indicators for PCHEM and YTLPOWER:
Company ROE EPS (sen) DY (%) PCHEM 1.0% 5.00 6.07 YTLPOWER 3.8% 2.20 7.46
As you can see, YTLPOWER has a higher ROE, which means it generates more income from its shareholders’ equity. It also has a higher DY, which means it pays more dividends to its shareholders relative to its share price. However, PCHEM has a higher EPS, which means it earns more profit per share.
Another way to measure the strength of a company is to look at its growth, which can be assessed by indicators such as revenue, net profit, and earnings growth. Based on the latest available annual reports, here are the values of these indicators for PCHEM and YTLPOWER:
Company Revenue (RM billion) Net Profit (RM million) Earnings Growth (%) PCHEM 23.57 2.06 342.1 YTLPOWER 10.71 751.00 24.0
As you can see, PCHEM has a higher revenue and net profit, which means it generates more sales and income from its operations. It also has a higher earnings growth, which means it increases its profit at a faster rate.
Based on these indicators, it seems that PCHEM is a stronger company than YTLPOWER in terms of profitability and growth.
PetChem improvement in its fourth quarter (Q4) 2023 earnings will primarily be driven by higher overall plant utilisation (PU) as a slew of unplanned outages in Q2 and Q3 2023 were resolved.
Touch macro conditions reflected in the results. A very bad quarter result, even worse than Q2 2020 when the whole global economy entered into lockdown.
Ex-one-off (MYR78m inventory write down to NRV), 4Q23 core net profit was MYR161m (-61% QoQ, -81% YoY). FY23 core earnings of MYR1,774m (-69% YoY) was only 86%/82% of ours/consensus estimates.
Key variance against our forecast was due to: i) unexpected shutdown at PC Aromatics and slowdown at PC Olefins due to steam interruption issues, resulting in lower production & sales volume in 4Q23; and ii) crimping of EBITDA and PAT margins due to operating leverage (lower sales volumes), coupled with higher maintenance costs throughout the quarter. A 2nd interim 5sen DPS brings FY23 DPS to 13sen (62% DPR), well within our forecast.
PetChem declared a dividend of five sen per share amounting to RM400 million payable on March 26.
Total dividends for FY2023 came in at 41 sen per share, totalling RM1 billion.
PCHEM’s 4Q23 results missed expectations. We cut our FY24-25E EPS by - 33%/-37% to account for:
i) lower EBITDA margins for its O&D segment; ii) post results house-keeping; and iii) incorporating Pengerang ops beginning 2H24. With that, our TP is lowered to MYR5.05 (from MYR5.75) after rolling forward valuation to FY25E (from FY24E) based on 18.1x PER (previously 16x), its updated 5Y mean. Maintain SELL.
yielder is this a good time to buy? since China's excess capacity flood the market and forced weak competitors to shut. does Petchem has long term advantage? 07/03/2024 9:28 AM
Dont understand how PetChem works. Revenue increases but profit margin plunges! I can understand it if revenue plunges and this is from the stable of Petronas well run companies! Now even their dividend plunges! Petronas Gas and Petronas Dagangan have always done well!
#Mohd ImranRafifi Nice catch, Mabel. You have made 3% paper gain now 🤑 15/03/2024 4:30 PM
Yes Sir!
To Our Success!
Captain Mabel Meow
Friday, March 15th 2024
Brent futures have broken through the $85 per barrel for the first time since November, indicating that the gradually improving sentiment, further buoyed by Ukrainian drone strikes on Russian refineries this week and declining US inventories, is here to stay.
Leesa688 Dont understand how PetChem works. Revenue increases but profit margin plunges! I can understand it if revenue plunges and this is from the stable of Petronas well run companies! Now even their dividend plunges! Petronas Gas and Petronas Dagangan have always done well! 15/03/2024 7:43 PM
In the case of Petronas Chemicals Group (PetChem), several reasons have been identified for this financial outcome:
• Compressed Margins: Despite higher revenues, PetChem’s earnings before interest, taxes, depreciation, and amortization (EBITDA) were lower mainly due to compressed margins. This could be due to increased competition, higher production costs, or lower selling prices for their products.
• Higher Operating Expenses: An increase in operating expenses, such as maintenance and energy & utilities costs, can reduce profit margins even if revenues are up.
• Plant Utilization Rate: PetChem reported a lower plant utilization rate due to higher plant statutory turnaround and maintenance activities, which resulted in lower production and sales volumes. This means that even though they may have sold their products at higher prices, they sold less overall, impacting profits.
• Foreign Exchange Losses: PetChem experienced higher foreign exchange losses on the revaluation of loans to a joint operation company and of a subsidiary. Currency fluctuations can have a significant impact on the profits of companies that operate internationally.
• Global Economic Conditions: The global economic recovery has been sluggish, which affects demand and prices for chemical products.
• Dividends: The decrease in dividends is likely a result of the lower profits. Companies often adjust their dividend payouts based on their profitability to maintain financial stability.
Hence to answer his question, while higher revenues indicate that PetChem was able to generate more sales, various factors like compressed margins, increased operating expenses, lower plant utilization, foreign exchange losses, and acquisition costs have negatively impacted their profit margins and dividends. It’s a complex interplay of operational performance and market conditions that affect the financial health of a healthy company like PetChem
Post a Comment
People who like this
New Topic
You should check in on some of those fields below.
Title
Category
Comment
Confirmation
Click Confirm to delete this Forum Thread and all the associated comments.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
HafizAjiad98
303 posts
Posted by HafizAjiad98 > 2 months ago | Report Abuse
Harga lelong hari ni. Masuk sikit @ 6.94