PETALING JAYA: Petronas Chemicals Group Bhd
(PetChem) will potentially divest its 50% stake in Pengerang Petrochemical Company Sdn Bhd (PPC) following Saudi Aramco's exit from the joint venture, says Hong Leong Investment Bank (HLIB) Research.
On May 25, Aramco signed an agreement to dispose of its 50% stake in PPC, as well as Pengerang Refining Company Sdn Bhd, to Petroliam Nasional Bhd (PETRONAS). PETRONAS controls 64.4% of PetChem.
At present, it is unknown whether PETRONAS will acquire the equity interest from PetChem.
However, should PETRONAS ultimately secure full control of PPC, HLIB Research said the strategic rationale would be to integrate upstream and downstream operations at Pengerang under a single entity.
This would enable better operational management, enhanced energy security and full control over the integrated complex.
“We gather that PPC resumed operations about a week ago and is currently operating at about 50% utilisation, following its end‑March shutdown due to feedstock constraints,” the research house said.
HLIB Research views a potential stake sale by PetChem as a “near‑term catalyst”.
The successful disposal of PPC would remove significant earnings drag and reduce PetChem’s forex exposure, it said.
“Based on our estimates, PPC is currently incurring net losses of about RM500mil to RM600mil annually – based on PetChem’s 50% stake – implying meaningful earnings upside should the divestment materialise.
“We understand that the proposed disposal would require minority shareholders’ approval and is likely contingent on completion of the ongoing Aramco transaction with PETRONAS.”
Any deal would be supported by an independent valuation and financial adviser to ensure an arm’s length, willing‑buyer‑ willing‑seller transaction, with valuation likely to be a key consideration given current industry headwinds.
Commenting on PetChem’s olefins and derivatives (O&D) segment, HLIB Research said polyethylene (PE) prices have corrected by about 40% from the recent peak, compared with a steeper 47% decline in naphtha prices, which have largely reverted to pre‑war levels. Currently, the PE‑naphtha spread remains decent at about US$600 to US$800 per tonne.
PetChem maintains a 70%/30% term‑to‑spot contract mix, with term contracts typically spanning one year and pricing linked to prevailing market rates with only a one‑week lag, or a US$20 to US$30 per tonne differential.
“We also gather that a major customer recently renewed its contract tenure, reflecting a growing emphasis on supply security,” HLIB Research said.
Meanwhile, for the fertilisers and methanol (F&M) segment, urea prices have declined by about 53% to pre‑war levels following the removal of the geopolitical risk premium on the ceasefire agreement, further exacerbated by China lifting urea export restrictions.
“We think the urea price weakness is temporary – with the upcoming planting season, urea prices are expected to recover in the second half of financial year 2026 (2H26) towards the US$500 per tonne level.”
However, plant utilisation is expected to moderate in the second and third quarters, before recovering in the fourth quarter of financial year 2026 (4Q26).
“We expect 2Q26 to capture the full benefit of the recent Iran war‑driven average selling price (ASP) upcycle, with both O&D and F&M recording higher quarter‑on‑ quarter ASPs.
“However, utilisation rates are expected to ease to about 80% due to planned turnaround activities at the Asean Bintulu Fertiliser and Kertih plants.
“We gather that there are no further impairment charges expected in FY26.”
Following the recent share‑price correction, HLIB Research said PetChem’s risk‑ reward has turned more attractive, underpinned by the potential divestment of its PPC stake, which could unlock value and potentially pave the way for a special dividend.
It upgraded PetChem’s rating to a “buy”, but lowered the target price to RM5.56.
