HLIB Research said the group’s 4Q23 core bottom line will likely be in the range of RM550mil to RM575mil.
PETALING JAYA: Hong Leong Investment Bank (HLIB) Research expects Petronas Chemicals Group Bhd
’s (PetChem) earnings in the fourth quarter of financial year 2023 (4Q23) to be driven by overall higher plant utilisation (PU).
The group’s 4Q23 core bottom line will likely be in the range of RM550mil to RM575mil, up by 33% to 39% quarter-on-quarter (q-o-q), but lower by 32% to 35% year-on-year (y-o-y) basis.
“It will in turn bring FY23 core earnings to range from RM2.16bil to RM2.18bil, down by 67.1% to 66.8% y-o-y.
“This represents 100% to 101% of our full year FY23 forecasts,” said the research house in its results preview on PetChem.
Recall there were a slew of unplanned outages in PC Methanol Labuan and PC Fertiliser Sabah in 2Q23, and PC Methanol Labuan and PC Olefins Kertih in 3Q23 which dragged PetChem’s PU to 82% and 77% respectively.
“Overall PU should improve to 85% in 4Q23 as we understand the outages would have been resolved by end-October, although there were some planned maintenance activities being performed in 4Q23.
“Therefore, we view that the recovery in 4Q23 will be PU driven as there were no significant movements in PetChem’s key product prices,” explained HLIB Research.
It said the polyethylene (PE) price q-o-q remained stable in 4Q23, while paraxylene and urea prices fell marginally by 4% to 5%. Methanol average selling price saw 12% growth q-o-q, thanks to lower output from the Middle Eastern producers.
“However, Pengerang commissioning losses, which narrowed from RM70mil in 2Q23 to about RM35mil in 3Q23 may expand in 4Q23 due to weaker ethylene-PE spread (a meagre US$64 per tonne versus US$183 per tonne in 3Q23, higher ethylene but muted PE prices) and absence of foreign exchange gain partially aiding 3Q23,” said HLIB Research.
According to commodity consultancy ICIS, limited petrochemical restocking activities were seen in China before the Lunar New Year Holiday as players refrained from building up inventory given its bleak demand outlook.
South-East Asia’s PE and polypropylene stayed flat in 1Q24.
Hence, HLIB Research reiterated its view that polyolefin prices will stay muted with limited downside left as sellers are resisting further discounts, especially amid the recent jump in freight costs globally.
Meanwhile, the Middle East urea spot price fell to a low of US$312 per tonne in mid-January and jumped to US$363 per tonne partially thanks to the conclusion of Indian import tender in January and speculation of another tender from India in February.
Also, China is still away from the international market as the fertiliser exports ban will maintain at least until May 2024.
Meanwhile, HLIB Research said South-East Asia supply will remain tight in 1Q24 due to planned maintenance activities in Malaysia and capped urea exports by Indonesia to stabilise domestic supply ahead of its general election this month.
“Nonetheless, any meaningful uptick from current level is challenging as demand fundamentals remain unexciting,” added the research house.
Hence, HLIB Research has trimmed its FY23, FY24 and FY25 earnings forecasts on PetChem by 1%,1% and 3%, after some minor adjustments on utilisation and ASP assumptions.
The research house said: “Post earnings adjustments, our target price is lowered to RM6.04 from RM6.11 previously.”
It also maintained a “sell” rating on the stock pending further operational updates from upcoming 4Q23 results announcement and analyst briefing on Feb 26.
