Affun Hwang Research has downgraded the counter from a
KUALA LUMPUR: AmResearch is maintaining its Hold rating rating on Petronas Chemicals Group (PChem) with an unchanged fair value of RM6.36 a share.
The research house said on Tuesday the fair value was pegged to a FY16F enterprise value/ earnings before interest, tax, depreciation and amortisation (EV/EBITDA) of 8.5 times (based on a 50% premium to PTT Global Chemicals).
To recap, PChem’s unit PRPC Polymers Sdn Bhd had awarded a US$482mil (RM2bil) contract to build a 900,000 tonnes per annum (900 ktpa) polypropylene plant to an Italian-Chinese consortium comprising Italy-based Tecnimonth S.p.A, and China’s Huanqiu Contracting & Eng. Corp.
The plant would be built within the Refinery and Petrochemicals Integrated Development (RAPID). The contract, starting on Nov 23, was expected to be completed in April 2019.
“This is within our expectations as we have indicated in our report on Nov 4 that PChem has reached a final investment decision for RAPID petrochemical facility in Pengerang, Johor. As this project is expected to cost US$3.9bil (RM16.8bil), we expect further announcements over the next few months to other contractors.
“Assuming a project IRR of 12%, we estimate that the entire stake in this petrochemical project could generate an earnings accretion of RM1.8bil or 67% of FY15F earnings,” it said.
AmResearch said while the group’s long-term prospects are favourable, the outlook for product prices remains mixed in the near-term as a likely improvement in olefins and derivatives, supported by supply constraints by Middle-Eastern plant maintenance activities could be offset by softer fertiliser and methanol prices, weak demand and crude oil prices.
“The stock is currently trading at a fair FY16F EV/EBITDA of 9.9 times, which is 68% above PTT Global Chemicals’ 5.9 times,” it said.
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