Higher input costs continue to weigh on PetChem


AmInvestment Bank Research said it has fine-tuned PetChem's FY24 net profit and raised its FY25 earnings by 10%.

PETALING JAYA: Petronas Chemicals Group Bhd (PetChem) is expected to see persistent earnings weakness in the near term due to sluggish petrochemical prices, given the absence of plant turnarounds and heavy maintenance.

AmInvestment Bank Research, which maintained a “hold” call on PetChem, has lowered its fair value (FV) to RM6.85 from RM7.45 previously, pegging it to financial year 2024 (FY24) enterprise value-to-earnings before interest, taxes, depreciation and amortisation ratio (EV/Ebitda) of 8.5 times.

“The lower FV is to account for lower product spreads from softer product prices and high operating costs. We cut PetChem’s FY23 earnings by 21% to account for a lower plant-utilisation rate and a mixed petrochemical price outlook for the remainder of the year.

“However, we fine-tuned FY24 net profit while raising FY25 earnings by 10%, assuming a moderate recovery in product prices and broadly stable plant-utilisation rates at 85%-95%.,” the research house said.

PetChem’s core net profit (CNP) of RM1.4bil for the nine-month period ended Sept 30, 2023 (9M23) came in below expectations, accounting for 57% of its earlier FY23 earnings and 55% of consensus forecasts.

Its 9M23 revenue rose by 6% year-on-year (y-o-y) to RM21.5bil, supported by stronger sales from the Pengerang plant in Johor and the inclusion of global specialty-chemicals company Perstorp Holding AB into the specialties segment.

However, 9M23 CNP plunged by 75% y-o-y due to lower Ebitda margins of 15% versus 31% in 9M22, mainly due to weaker product spreads, particularly for ethane, ammonia/urea-related products, higher energy/utilities costs and increased depreciation charges.

On a positive note, the contributions from Perstorp, coupled with the gradual startup of Pengerang Integrated Complex, would also partially cushion the current subdued petrochemical-product prices.

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