Petronas Chemicals Group and the state of Sabah – through its wholly-owned company SMJ Sdn Bhd (SMJ) – have signed the Heads of Agreement for the acquisition of 25% equity interest in Petronas Chemicals Fertiliser Sabah Sdn Bhd.
The acquisition of equity interest in PCFS will give Sabah a greater revenue share in the oil and gas industry in the state. This is in addition to the recent acquisition of selected downstream gas pipeline assets and supply of natural gas contracts by Sabah Energy Corporation Sdn Bhd (SEC), which makes SEC the largest domestic supplier and transporter of natural gas in Sabah. These acquisitions signify the increased participation of Sabah state GLCs in the local oil and gas industry.
The divestment is part of PCG’s strategic approach to establish itself as a preferred partner in developing and achieving its expansion plans for the petrochemicals industry in Sabah. The group welcomed SMJ as its strategic partner as it will be crucial to PCFS’s expansion, while adding value to the state’s oil and gas resources. Production of 1.9 million MT per annum. PCFS was founded in 2011 with the goal of building, owning, and operating an integrated ammonia and urea production complex in the Sipitang Oil and Gas Industrial Park (SOGIP) in the municipality of Sipitang, Sabah. PCFS has facilities capable of producing 1.9 million metric tonnes of ammonia and urea annually on a global scale.
It is the third-biggest urea plant in Asia Pacific and Southeast Asia’s largest single-train ammonia and urea facility. Through SOGIP, PCFS is a significant driver for the growth of the oil and gas sector in Sabah. It is Sabah’s first fertiliser factory as well as its first top-tier petrochemical facility.
SMJ is a state oil and gas company established by the State Government of Sabah to oversee the state’s overall interest in oil and gas developments for the best interest of the state. SMJ is part of Sabah’s development initiative, which plays a key role in the advancement of its industrial sector, including the petrochemical industry. Part of its initiative for the industrial sector is to secure potential investors to invest in Sabah’s economic growth for 2021-2025. Sabah is also home to 11 tcf of natural gas and 1.5 boe of crude oil reserves, which makes up 12% and 25% of Malaysia’s total gas and oil reserves respectively. This presents a great opportunity for the state to leverage its oil and gas sector. Hence, we opine that PCG’s divestment of the 25% stake in PCFS will aid the state in reaching this goal while continuing to be the main petrochemical player in the Borneo region.
Considering that the divestment is in line with PCG’s plan of expanding its strategic partnership in the Sabah state, MIDF makes no changes to its earnings estimates and maintains a target price of RM11.77, pegging a PER of 11.4x to a revised EPS23 of 103.6sen. The PER is derived from the chemical and materials industry’s 5- year average.
The house reiterates a positive stance with PCG as the epicentre for the local and regional petrochemical industry and believes that PCG’s continuous actions for growth in terms of partnerships, production investments, and sustainability will remain robust throughout the year. Ahead of the tabling of Budget 2023 and in consideration of an expectedly stable oil and gas market, MIDF believes PCG will continue to share the benefit with petroleum-producing states and ensure that the local petrochemical industry will maintain its strong position in the region
