By Sherilyn Goh
Petronas Chemicals Bhd (PetChem) has been upgraded to “buy” by TA Securities, with a revised target price of RM7.42 from RM5.81 previously, following the announcement of its results for the third quarter of financial year 2015 (3Q15) ended Sept 30.
According to Bursa filing, PetChem’s net profit for the quarter surged 35% year-on-year (y-o-y) to RM990 million, whereas revenue grew 2.6% y-o-y to RM3.642 billion.
TA Securities attributed the exemplary results of the group to a stronger US dollar, increased volumes due to resilient demand, improved product mix, expansion in product spreads and high plant utilisation.
According to TA Securities, for every 10 sen increase in US dollar against the ringgit will result in approximately 5% rise in PetChem’s Ebitda (earnings before interest, taxes, depreciation and amortisation)..
According to the research house, 3Q15 group plant utilisation improved to 88%, compared to 78% in the previous quarter and 75% in the corresponding period last year. Olefins and derivatives (O&D) had close to full plant uptime, while fertilisers and methanol (F&M) registered 79% run rate due to maintenance at the Labuan Methanol 2 facility.
“Moving forward, management expects prices to remain weak for urea due to sluggish demand, resulting in supply growth outpacing demand. Meanwhile, methanol and O&D prices are expected to remain soft as well, in tandem with crude oil price weakness,” said TA Securities in its note published today.
PetChem also recently announced the acquisition of the entire equity interests of three companies undertaking RAPID petrochemical projects from Petronas Refinery and Petrochemical Corp Sdn Bhd (PRPC) for RM13,000.
According to TA Securities, the three projects are polymers, glycols, and elastomers facilities with total capital expenditure of US$3.9 billion (RM16.65 billion) and combined capacity of 2.7 million tonnes per annum. PetChem will assume the assets and liabilities of these companies totaling US$110 million.
More details are expected to follow in end-November, noted the research house.
Following the upgrade in house earnings forecast, TA Securities is raising its target price on PetChem to RM7.42, based on unchanged 17.5 times 2016 calendar year price-earnings.
“We believe the 24% premium over peers’ current average of 14x is well justified, mainly due to superior Ebitda margin on the back of ethane gas feedstock advantage, and looming earnings rerating as consensus have yet to factor in capacity expansion from RAPID and other projects.
“Furthermore, PetChem’s earnings outlook is well supported by US dollar strength if the US Federal Reserve finally raises interest rates as planned, improved methane gas feedstock reliability from Dalak pipeline, completion of major statutory plant turnaround exercises in 2014, and resilient demand as prolonged crude oil price weakness enhances affordability of petrochemicals,” it added.
At 11.09am, PetChem was trading 1 sen higher at RM6.51. A total of 24,175 shares were traded.
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