RHB Investment Bank Bhd (RHB Research) has upgraded Petronas Chemicals Group Bhd to BUY from Neutral with an unchanged target price of RM5.92, implying 46% upside, with analysts saying the potential divestment of its 50% stake in Pengerang Petrochemical Company could be a key re-rating catalyst alongside stabilising earnings trends despite near-term margin pressure from softer urea prices and planned plant turnarounds.
RHB Research said while Petronas Chemicals’ near-term earnings are expected to be weighed by lower urea prices and scheduled maintenance activities, these headwinds are seen as temporary, with methanol and ammonia prices remaining relatively resilient to cushion its fertilisers and methanol segment. Urea prices have fallen to US$407.50 per tonne compared with a year-to-date average of US$615.60 per tonne as supply conditions ease following reduced geopolitical disruption and higher exports from China.
The research house said 2QFY26 is likely to represent an earnings peak as stronger realised average selling prices are expected to offset lower utilisation rates at key plants including Asean Bintulu Fertiliser and Kertih, with earnings normalisation anticipated in subsequent quarters as supply chains recover and pricing premiums fade. It added that seasonal fertiliser demand is likely to support a gradual urea recovery in the second half of 2026.
A key catalyst highlighted by analysts is the potential sale of Petronas Chemicals’ 50% stake in Pengerang Petrochemical Company, which RHB Research estimates could remove an annual earnings drag of about RM500 million to RM600 million while reducing foreign exchange volatility and improving earnings quality, given the project’s heavy US$-denominated exposure.
RHB Research maintained its earnings forecasts and said the unchanged valuation is based on 1.3 times FY26F price-to-book value, with a 4% ESG discount applied. It added that recent share price weakness has largely priced in downside risks, while the PPC divestment optionality could drive further rerating momentum despite risks from weaker-than-expected petrochemical spreads and currency movements.
As of 11.44 am, the stock price rose 4.20% to RM4.22.
