Maybank Investment Bank (Maybank IB) today (Feb 27) has cut their FY24-25E EPS for PETRONAS Chemicals Group Berhad (PCHEM) 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.
Maybank IB has lowered its TP 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. They Maintain SELL.
4Q23 missed expectations but DPS was in-line
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 Maybank IB’s 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 Maybank IB’s forecast.
FY23 dragged by lower product ASPs and margins
Based on Maybank IB findings from Bloomberg data, all product spreads were down YoY. For instance, FY23 average polyethylene prices (HDPE, LDPE, LLDPE) were down 12-27% YoY (vs. FY22).
Also, urea prices sank -42% YoY while methanol prices fell -15% YoY.
PCHEM’s O&D and F&M segments’ PAT margins dropped to 5.1% (-14.8 ppts) and 19.5% (-12.1 ppts) respectively due to lower product spreads coupled with higher energy/utilities costs.
Group CNP margin was down 16.5 ppts YoY to 6.2%.
Consolidation of Pengerang ops to drag earnings
PCHEM is hopeful that the consolidation of its Pengerang ops will commence in 2Q24 and with that, Maybank IB has pencilled in additional fixed costs from the Pengerang Petrochemical Complex (PPC) for the entirety of 2H24 (additional MYR500m/year).
Note that PPC will introduce to PCHEM the exposure of polymer-naphtha spreads, which are currently negative.
