Affin Hwang Research retains Buy on Petronas Chemical, higher TP

Petronas Chemicals Bhd registered the highest net money inflow of RM9.47mil last week.

KUALA LUMPUR: Affin Hwang Capital Research continues to like Petronas Chemicals for its long-term Refinery and Petrochemical Integrated Development (RAPID) capacity expansion story coupled with likelihood of margin expansion with a higher oil price environment.
 
The research house said on Monday it maintained its Buy call and raised its 12-month target price to to RM10.30 (from RM10), based on unchanged 17 times price-to-earnings ratio (PER) on higher FY19E EPS. 

Downside risks include declines in product average selling prices (ASP), lower plant utilisation and weaker product demand.  

Commenting on the third quarter results ended Sept 30, 2018, Affin Hwang Research said they were  lifted by a rebound in product ASP and lower effective tax rate, pushing core net profit up by 38% on-year. 

“However, 4Q18 outlook may not look as rosy with ethylene, polymers, MEG and benzene facing some price pressure, but will remain supported by positive fertiliser and methanol prices. We reiterate our Buy call with a higher target price at RM10.30,” it said.

The 3Q18 net profit came in at RM1.257bil (+38% on-year), bringing cumulative 9M18 to RM3.847bil (+21% on-year), which surpassed expectations, coming in at 86% and 88% of the research house and consensus forecast respectively. 

The better than expected results was lifted by stronger product ASP and a lower-than-expected effective tax rate, following the reversal of prior year overprovision.

Olefins and derivatives revenue and EBITDA rose 20% and 13% driven by better ASP, higher plant utilisation (96% vs 82%) as a result of lower turnaround at its cracker and related downstream facilities. 

Despite a heavier turnaround activities in the fertiliser & methanol segment for its urea and methanol plant, revenue was up 20% yoy supported strongly by better product ASP. This led to an EBITDA increase of 15%.