PChem's strong 2Q performance not sustainable, says Kenanga


  • Analyst Reports
  • Wednesday, 14 Aug 2019

analyst report

KUALA LUMPUR: Kenanga research views Peronas Chemicals Group Bhd's strong 2Q19 results of RM1.12bil as not sustainable owing to heavy statutory turnarounds in 3Q19 to hit bottom-line.

The first-half earnings of RM1.92bil, which met 55% and 48% of Kenanga's and consensus full-year estimates was owing to a 40% quarter-on-quarter jump in net profit in 2Q from perfect plant utilisation.

However, Kenanga considers its forecast on track due to the three heavy statutory turnarounds in 3Q.

Moving forward, the research house said there is no sign of price recovery in 3Q with continued downside pressure on polymers and methanol on demand lagging supply.

It also expects initial earnings contributions from RAPID to be minimal or at breakeven given start-up costs. "For now, PCHEM is unable to commit the operational date, pending the COD for the refinery as well as cracker plants, but it should be by this year-end.

"Management expects 60% PU in first year of operations and reaching full operation in three years," said Kenanga.

Petronas Chemicals' share price has fallen 22% year-to-date, which reflects the earnings risk arising from depressed petrochemical prices.

"With 3Q19 results anticipated to be weaker, we believe MARKET PERFORM rating is best for now with an unchanged target price of RM7.70, which is based on 3-year mean FY20 PER of 15.5x," said Kenanga.

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