Despite a brief pickup in Petronas Chemicals’ (PCHEM) 1Q23 olefin and derivatives average selling price that yielded sequentially higher revenue, PCHEM was unable to capitalise due to lower plant utilisation, higher operating expenses and relatively tepid demand across the board, said Maybank Investment Bank Bhd (Maybank IB) in a recent report.
“With product prices now appearing to revert to its downtrend mean, we slash our FY23- 25E forecasts by 9-24% and lower our trading price by 7% to RM6.85. Our HOLD rating is maintained,” said Maybank IB.
Excluding realised net FX losses of RM73 million, PCHEM’s 1Q23 core profit after tax and minority interest came in at RM609 million. The results were below both ours and the street’s expectations, at 14%/12% of full-year estimates respectively.
Earnings before interest, depreciation and amortisation margins (EBITDA) continued to compress from higher unit cost of production whilst average selling prices in both key segments (olefin and derivatives/fertiliser and methanol) remained relatively weak QoQ.
Key takeaways are such as the Group turnover coming in at a higher YoY at RM7,557 million from higher plant utilisation but dragged 13% QoQ in the absence of statutory turnarounds (STAs) in 4Q22.
Also, the olefin and derivatives segment EBITDA was lower sequentially despite higher product prices due to weak ethane polymer sales, STAs in PC Aromatics/PC LDPE and start-up losses at PIC.
The fertiliser and methanol segment revenue and EBITDA both dragged from weaker sales volume , declining product prices as well as a strengthening RMUSD; and specialties EBITDA margins improved 4.6 ppts sequentially, underpinned by lower feedstock costs and a pick-up in demand for resins & coatings (alkyls), lube oil chemicals, advanced materials (PVB film) and engineered fluids.
The group’s average selling price outlook remains weak across the board. Sluggish global growth has exerted significant downward pressure on olefin and derivatives and fertiliser and methanol product prices over the past 18 months with ample supply and capacity currently available on the market.
“PCHEM’s substantial operating expenses increase in the last two quarters has also pressured margins and although we opine that PCHEM is likely to continue operating above breakeven in FY23, it is unlikely to post supersized profits as it had done in FY21/22,” said Maybank IB.
With the petrochem upcycle now well and truly over, Maybank IB continues to be downbeat on the stock and have further revised FY23-25E lower by 24%/9%/16%; maintain HOLD.
