Maybank IB expects a windfall for PetChem Q1

Maybank Investment is revising PetChem 2013 earning forecast by 3.8% to take into account the strong first quarter 2013 results. – AFP

KUALA LUMPUR: Petronas Chemicals Group Bhd’s (PetChem) 1Q17 results, which is expected to be released end-April, will be a windfall underpinned by strong volume and higher average selling price (ASP), according to Maybank Investment Bank Research. 

The research house estimated PetChem’s utilisation rate to exceed 90% given there was no unscheduled factory shutdown. 

Petrochemical prices have surged on better demand and inventory levels and also higher crude oil prices. 

“We keep our earnings forecasts unchanged pending the actual results, and retain our RM7.65 target price based on 8.5x 2017 enterprise valuation over earnings before interest, tax, depreciation and amortisation (EV/Ebitda) which is on par with global peers. Maintain ‘hold’,” Maybank said.

The research house said global demand for petrochemicals was healthy and the latest global PMI was in positive growth territory of 52.9 as at end of February 2017.

Maybank estimated 1Q17’s ASP to be RM3,461 per tonne, a growth of 24% year-on-year.

 Olefins and methanol prices have risen substantially year-on-year and also quarter-on-quarter on better demand, lower global inventory levels and higher crude oil prices which support higher selling prices. 
 
Furthermore, it added that the average ringgit depreciated by 4.6% year-on-year against the US dollar in first quarter 2017, providing substantial advantage to PetChem given that all of its revenues are US dollar-denominated while roughly 70-73% of operating costs were US dollar-denominated. 

Year-to-date, ASPs have risen by 24% year-on-year to RM3,487 per tonne, Maybank estimated. 

“This is well ahead of our 8% full-year growth assumption and the near-term outlook remains robust. 

“We remind that there will be more scheduled factory shutdowns in 2017 and thus utilisation rates will drop. However, should the ASP continue to track higher for the full-year, our FY17 earning forecast is looking conservative,” it said.