PetChem earnings forecast raised

CGS-CIMB Securities has raised its earning forecast on PetChem

Analysts upgrade earnings outlookfollowing results that beat expectations

PETALING JAYA: Several analysts have increased their earnings forecast on Petronas Chemicals Group Bhd (PetChem), following the company’s earnings results that beat market consensus.

CGS-CIMB Securities has raised its earning forecast on PetChem’s FY18 and FY19 by 1.8% and 2.4% respectively, to reflect higher crude oil prices.

“We remain ‘positive’ on PetChem’s earnings outlook given our projected higher olefin margins, driven by higher oil prices and higher product prices,” it said in a report yesterday.

The research house pointed out that PetChem’s net profit in 2017 had beaten its forecast by 8% and consensus by 5%.

Meanwhile, RHB Research has upgraded its revenue estimates on PetChem for 2018 and 2019 by 12.2% and 11.7%, respectively, after factoring in higher product prices and sales volume.

It expected olefin and derivatives product prices to remain strong in 2018, on expectation that crude oil prices remained firm and demand for petrochemical products improving on sustained turnaround activities in this region.

However, it expected fertilisers and methanol products to remain flattish this year due to the cooling down in demand from China, and expectations of additional capacity in the long term.

Additionally, aside from PetChem’s Sabah Ammonia and Urea (Samur) plant, the company is also in the midst of starting up an aroma plant, specialty chemicals such as citral, menthol and citronellol in the Pengerang Integrated Complex in Johor, which is expected to commence operations towards the end of 2019.

“Potential catalysts include a higher potential dividend payout post the Saudi Aramco cash injection for its expansion in the Refinery and Petrochemical Integrated Development (RAPID) project,” RHB said yesterday.

However, Maybank IB Research said that at the current share price, PetChem’s valuationis above the industry average, as such it maintained a “hold” call on the company stock.

“PetChem is a high quality petrochemical name due to its cost leadership, strong operational excellence, strong cash flow and net cash position coupled with an attractive growth pipeline.

“However, its valuations are already above industry peer average,” it said in a note yesterday.

Nonetheless, Maybank expected strong first quarter results by PetChem underpinned by the surge in crude oil prices and tight supply of petrochemical products.

“Petrochemical prices soared earlier this year due to the surge in crude oil prices, buoyant demand and tight global supply due to slow startup of new US petrochemical plants and there are a number of factory shutdowns in the Middle East.

“We estimate the average selling price (ASP) will rise by 1%-2% year-on-year in the first quarter which is slightly above our full year growth assumption for flat ASPs,” it said.

PetChem’s net profit for its fourth quarter ended Dec 31, 2017 rose to RM1.01bil from RM987mil in the previous corresponding period, backed by higher crude oil prices and a better sales volume from the commencement of the Samur project.

Its revenue in the quarter increased to RM4.74bil from RM3.95bil a year earlier.

For the full financial year ended Dec 31, 2017 (FY17), PetChem’s net profit rose to RM4.18bil from RM2.93bil in the previous corresponding period while revenue increased to RM17.41bil from RM13.86bil a year earlier.

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