It said on Tuesday it had removed the one standard deviation premium from its rolled forward target FY18F enterprise value/earnings before interest, tax, depreciation and amortisation (Ebitda) to 8.2 times, on par with its three-year average given the close correlation of oleochemical prices to crude oil volatility.
“We have raised PChem’s FY17F-FY19F earnings by 15%-22% from a two percentage points increase in average product prices and 7-11 percentage points reduction in effective tax rates to 12%-16% as the group shifts its marketing operations to Labuan to benefit from the 3% tax rate under the Global Incentive for Trading.
“Our forecasts, which were already 9%-18% above consensus, are now even higher by 26%-46%,” said the research house.
AmInvestment Research said PChem’s 1QFY17 net profit of RM1,295mil exceeded expectations, accounting for 36% of its FY17F earnings and 39% of street’s estimates of RM3,297mil.
As a comparison, 1QFY16 accounted for only 19% of FY16 net profit.
“We note that the earnings increase was driven more by the fertiliser and methanol segment (FM), which climbed 67% on-quarter vs. 22% for the olefin and derivatives division (OD).
“Hence, the FM division accounted for 33% of 1QFY17 profit after tax vs. 26% in 4QFY16. With our higher earnings forecasts, the stock now trades at an attractive FY18F EV/Ebitda of seven times currently below its three-year average of 8.2 times,” it said.
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