"With the upturn in crude oil prices, PChem’s earnings visibility has been restored given that the group’s product prices have a high 3-year coefficient correlation of 81% to
crude oil prices," it said.
While the research house expects 2QFY20 earnings to be weaker quarter-on-quarter due to likely lower average oil price and the time lag impact on chemical prices versus crude oil, it expects investors to look ahead to FY21 given the moderation in the impact of the Covid-19 demand destruction.
"We raise PChem’s FY20F–FY22F earnings by 30%–33% on a 5%-20% increase in our product price assumptions in tandem with the recent upturn in oil prices," it said.
It also raised Petronas Chemicals' fair value to RM7.70 from RM4.45 previously.
According to AmInvestment, Opec+ has decided to extend its production quotas to almost the same level for another month instead of tapering them as planned by end-June.
As China's crude demand rebunded to 13 million barrels per day in May, Saudi Arabia has raised prices for crude exports by its highest in over 20 years.
"Saudi Aramco raised Arab Light to Asia by an average US$6.10/barrel to a premium of 20 US cents over the benchmark, with all July grades to Asia by between US$5.60 and US$7.30/barrel.
"As a comparison, a Bloomberg survey of traders indicates an earlier expectation for an average increase of US$4/barrel," it said.