Stock Name: PCHEM
Company Name: PETRONAS CHEMICALS GROUP BHD
Research House: MAYBANK
Petronas Chemicals Group Bhd
(March 4, RM6.33)
Maintain buy at RM6.29 with revised target price of RM8 (from RM6.70): We believe the fundamentals for the petrochemical industry have never been better, buoyed by recovery in demand, strong product margins and an increasing price divergence between natural products and synthetic alternatives.
Furthermore, high oil prices are beneficial as Petronas Chemicals' products generally track oil price increases. We raise our target price to RM8.00 (from RM6.70) based on 14.4 times 2011 ' which is the long-term industry mean price-earnings ratio.
The historical depiction of a super-cycle is when demand exceeds supply. This time however, the cycle will be driven by sustained strong demand from the emerging markets. Supply, however, will be prone to sporadic shortages due to feedstock scarcity and civil unrest at production facilities in the Middle East and North Africa. The rising oil price helps underpin higher petrochemical prices as they generally track each other with a 91% correlation factor.
Prices of many resource-based commodities have come close to or touched all-time highs.
The price-ratio relationship between natural commodities and synthetic alternatives has been diverging in favour of synthetics ' synthetics are getting cheaper. This will cause a fundamental shift in demand for synthetic products as consumers look to lower-cost alternatives.
We notice how the market is 'annualising' year-to-date figures to gauge full-year results. These figures are unreliable as the petrochemical industry is cyclical, and quarter-to-quarter earnings fluctuate widely due to price and volume instability. We believe 2011 numbers will be ahead of consensus.
We have re-tabulated our numbers to a December year-end (from March) as per a company announcement on March 2. We have upgraded our earnings by 14% for calendarised 2011, 7% for 2012 and 4% for 2013 to account for higher product margins, in line with the current market rates.
Petronas Chemicals will have two FYEs this year ' FY3/11 (12M, April 2010-March 2011), and FY12/11 (9M, April 2011-December 2011). ' Maybank IB Research, March 4
This article appeared in The Edge Financial Daily, March 7, 2011.
Company Name: PETRONAS CHEMICALS GROUP BHD
Research House: MAYBANK
Petronas Chemicals Group Bhd
(March 4, RM6.33)
Maintain buy at RM6.29 with revised target price of RM8 (from RM6.70): We believe the fundamentals for the petrochemical industry have never been better, buoyed by recovery in demand, strong product margins and an increasing price divergence between natural products and synthetic alternatives.
Furthermore, high oil prices are beneficial as Petronas Chemicals' products generally track oil price increases. We raise our target price to RM8.00 (from RM6.70) based on 14.4 times 2011 ' which is the long-term industry mean price-earnings ratio.
The historical depiction of a super-cycle is when demand exceeds supply. This time however, the cycle will be driven by sustained strong demand from the emerging markets. Supply, however, will be prone to sporadic shortages due to feedstock scarcity and civil unrest at production facilities in the Middle East and North Africa. The rising oil price helps underpin higher petrochemical prices as they generally track each other with a 91% correlation factor.
Prices of many resource-based commodities have come close to or touched all-time highs.
The price-ratio relationship between natural commodities and synthetic alternatives has been diverging in favour of synthetics ' synthetics are getting cheaper. This will cause a fundamental shift in demand for synthetic products as consumers look to lower-cost alternatives.
We notice how the market is 'annualising' year-to-date figures to gauge full-year results. These figures are unreliable as the petrochemical industry is cyclical, and quarter-to-quarter earnings fluctuate widely due to price and volume instability. We believe 2011 numbers will be ahead of consensus.
We have re-tabulated our numbers to a December year-end (from March) as per a company announcement on March 2. We have upgraded our earnings by 14% for calendarised 2011, 7% for 2012 and 4% for 2013 to account for higher product margins, in line with the current market rates.
Petronas Chemicals will have two FYEs this year ' FY3/11 (12M, April 2010-March 2011), and FY12/11 (9M, April 2011-December 2011). ' Maybank IB Research, March 4
This article appeared in The Edge Financial Daily, March 7, 2011.
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