Petronas Chemicals' F&M segment shining bright

KUALA LUMPUR: Elevated prices in the fertilisers and methanol segment continue to boost Petronas Chemicals Bhd's near-to-mid-term outlook as the supply constraints are not expected to ease until mid-2022.

According to Maybank Investment Bank Research, the segment, which was the primary driver of Petronas Chemical's record-breaking 2Q21, continues to see heightened earnings amid tightening global supply and soaring average product prices (ASP).

The research house said the supply tightness in the global fertiliser market is a by-product of three conflating factors including soaring natural gas prices, the fallout from Hurricane Ida and the Chinese government's decision to instate export controls on fertiliser shipments effective Nov 1.

In 3Q21, ASPs for urea and ammonia were sequentially higher by 28% QoQ whilst methanol prices posted a modest 8% gain.

The average methanol price so far in 4Q21 has surged 19% as Chinese supply remains constrained, while urea/ammonia ASPs have thus far held on to their 3Q21 gains.

"Elevated ASPs in the F&M segment are not expected to subside until the summer of 2022, as supply chain disruptions continue to exacerbate strong demand from economies emerging out of lockdown," said Maybank IB.

Coupled with firm ASPs in the olefins and derivatives division and the absence of major turnarounds in 3Q21, the research house believes Petronas Chemicals is on course to have an exceptional FY21.

With Pengerang Integrated Complex's start-up on track in 4Q21, Maybank IB is also sanguine about its prospects heading into FY22.

The brokerage raised its FY21-23 earnings per share estimates by 11%, 20% and 6%.

It upgraded its rating on Petronas Chemicals to "buy" with a new target price of RM9.70, pegged to an unchanged nine times FY22 EV/Ebitda, representing the 10-year mean.

"It also has a robust balance sheet with a net cash position of MYR12.6b (MYR1.58 per share) as at end2Q21 and offers an attractive FY21/22E dividend yield of 4.2%/3.3%," it said.
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