Petronas Chemicals sees increased income

PetChem chairman Datuk Md Arif Mahmood (pic) said the company was targeting to start its operations in PIC by the second half of the year with production of less than one million tonnes of specialty chemicals.

PETALING JAYA: Petronas Chemicals Group Bhd (PetChem) expects a 10% to 15% revenue boost once its Pengerang Integrated Complex (PIC) comes into full force by next year.

The group is also banking on specialty chemicals and is in search of potential acquisitions to safeguard its profitability.

PetChem chairman Datuk Md Arif Mahmood said the company was targeting to start its operations in PIC by the second half of the year with production of less than one million tonnes of specialty chemicals.

“Typically when we start a complex, we will not be running it at full capacity. As such, the contribution from PIC would not be significant for this year.

“Nonetheless, we will ramp up our production in PIC to full capacity by next year that could contribute between 10% and 15% to group revenue, but depending on the selling price, ” he told reporters at a virtual media conference after PetChem’s AGM yesterday.

With PIC, PetChem managing director and CEO Datuk Sazali Hamzah said the group’s production capacity would increase from 12.8 million tonnes per annum to 14.6 million tonnes.

PetChem has been seeing declining profitability over the years and its current capacity is running at a 94% utilisation rate.

Since its record performance in the financial year ended Dec 31,2018 (FY18), PetChem’s net profit has been declining due to the weakness in crude oil prices and competition in the petrochemical space.

For FY20, PetChem’s net profit fell 42% to RM1.63bil from RM2.82bil in FY19, while for FY19 its net profit fell 43% from RM4.87bil a year earlier.

Moving into 2021, Md Arif expects a better performance by PetChem on the back of higher crude oil prices, improvement in demand and cost optimisation within the group.

It is targeting to generate additional earnings before interest, taxes, depreciation and amortisation or ebitda of RM300mil from its cost-optimisation efforts.

“Covid-19 has really taught us how to optimise our costs, and we are going to maintain that and be better in 2021, ” Sazali said.

“With the rollout of the Covid-19 vaccine and the economic growth, you should see a better year, ” he added.In terms of capital expenditure (capex), Md Arif said PetChem would maintain its annual capex of RM2.6bil that has been allocated mainly for a “major turnaround” at five of its plants that would affect its production.

“We have a slightly heavy turnaround this year involving five of our facilities.

“To meet the same production volume of 10.7 million tonnes would be a stretch for us, but it is something we strive for.

“The plan for this year would be to achieve close to that number, ” he said.

Md Ariff pointed out that the group’s diversification into specialised chemicals and further strengthening of its regional partnership would safeguard PetChem’s profitability.

“We are optimistic about the petrochemical sector, especially with the region’s rapid economic growth at about 3.5% annually as well as the increasing middle-class population.

“We are in the region that is anticipated to be driving the world’s economic growth. There are huge markets beyond China, such as Indonesia and countries around the South-East Asia region, ” he said.

Md Ariff added that PetChem is on the lookout for potential M&As in the specialty chemicals space.

PetChem acquired Da Vinci Group (DVG) in 2019 for RM760.6mil to mark its foray into the specialty chemicals industry.

The Netherlands-incorporated DVG is a private limited liability company with global operations involving own-brand reselling, formulating and manufacturing of silicones, lube oil additives and chemicals.

PetChem has also obtained approvals for two expansion projects, namely, a silicon blending facility in Gebeng, Pahang as well as a new facility for the lube oil additives and chemicals business in the Netherlands that would see the group having access to high-growth end markets such as personal care, automotive and healthcare.

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