Petronas Chemical Group Berhad’s (PCG) fourth quarter of 2023 financial year (4Q23F) may not be as strong as hoped according to CGS-CIMB.
In its Company note today (Nov 2), it also think that 2H23F is also potentially weaker-than-expected.
“For Oct 2023, average PE, methanol and urea prices averaged higher than during 3Q23. But demand weakness and ample supply, as well as the moderating crude oil price, caused PE and urea prices to drop last Friday WoW.
“This is the first WoW drop since mid-2023, and may mark the reversal of the short-lived and weak price uptrend since mid-2023,” it said.
Thus, CGS-CIMB reiterate REDUCE rating with unchanged end-CY24F TP of RM6.85, based on a target P/BV of 1.33x, -2 s.d. from mean given the weak medium-term outlook.
The research house said PCG will release 3Q23F results on 28 Nov and the CGS-CIMB thinks there is risk of core net profit coming in below expectations due to Pengerang commissioning losses.
“The unscheduled outage at Labuan Methanol Plant 2 for one month in 3Q23F and lower QoQ PE, MEG and methanol prices may also depress earnings,” it added.
It pointed out that the potential derating catalysts are if prices continue to weaken and PCG’s 4Q23F performance may not be significantly better QoQ that could puncture the hopes of investors.
“We expect cash losses after the commercial start-up of Pengerang sometime during FY24F,” it said.
CGS-CIMB said PCG delivered three consecutive quarters of the group’s rather weak core net profits between 4Q22 and 2Q23, as a result of the downturn in petrochemical selling prices.
“In our view, this could be the main reason why PCG’s 3Q23F core net profit may end up lower than in 2Q23, in our view. While urea prices
averaged higher qoq, we think the uptick is unlikely to be sufficient to compensate,” it said.
It added Pengerang commissioning losses may widen in 3Q23F and 4Q23F as PCG was reported by consultancy Chemical Market Analytics (CMA) to be alternating between starting up and shutting down, which is likely to be very costly.
On the unplanned shutdown of its Labuan Methanol Plant 2, it said the F&M division saw its average utilisation fall from 1Q23’s 97% to 2Q23’s 73% due to methane gas supply issues caused by pipeline maintenance.
“Any recovery in the plant utilisation rate may have to wait until 4Q23F. Finally, given the weak European economy, we think that the
ongoing specialty chemical losses will likely continue into 3Q23F,” the research house added.
Its upside risks include supplier production curbs that could help improve the demand -supply balance
