Stock Name: PCHEM
Company Name: PETRONAS CHEMICALS GROUP BHD
Petronas Chemicals Group Bhd
Aug 8, RM6.43
Maintain neutral with unchanged target price of RM6.82: Petronas Chemicals (PetChem) is expected to see a lacklustre share price performance on the back of plunging crude oil, which fell by 13% to US$86.90 (RM261.57) per barrel up to last Friday, compared with a one-month high of US$99.90 per barrel on July 27, 2011. PetChem's share price declined accordingly, losing 6.1% for the same period.
PetChem's 2Q results, expected to be released at the end of this month, are likely to see lower product sales volume and margins that might drag its quarter-on-quarter (q-o-q) earnings growth. Judging from Malaysia's petroleum products exports in April to May 2011, which only accounted for about 50% of the total in 1QCY11, we reckon the potential shortage in feedstock supply due to natural gas curtailment has affected PetChem's production. Note that PetChem is the largest petrochemical producer in Malaysia and export sales contributed about 55% of its total revenue in FY10.
We also expect PetChem to record a flat or marginally lower profit margin in 2Q due to a narrow average product price spread. Based on our estimates, the average price spread of ethylene/natural gas declined by US$43 per tonne to US$945 per tonne and polyethylene/ethylene by US$3 per tonne to US$198. Our view coincided with the fact that Thailand-listed PTT Chemical and Saudi Arabia-listed Yanbu National Petrochemical's earnings before interest, tax, depreciation and amorisation margin was -1% and -1.8% points q-o-q lower. Like PetChem, both companies use primarily natural gas as their feedstock.
Our full year earnings per share (EPS) forecast is still 8.6% lower than the annualised figure based on 1Q earnings. This is in line with our expectation that q-o-q results might be weaker. As such, we are maintaining our earnings estimates at the moment pending the 2QFY11 results announcement. The year-on-year EPS growth forecast for FY12 is still estimated at 13.8%. Given the current share price, the upside is only 3.5%. We maintain our 'neutral' recommendation for PetChem with unchanged target price of RM6.82, derived from 16 times 2012 EPS. ' MIDF Research, Aug 8
This article appeared in The Edge Financial Daily, August 9, 2011.
Company Name: PETRONAS CHEMICALS GROUP BHD
| Research House: MIDF | Price Call: HOLD | Target Price: 6.82 |
Petronas Chemicals Group Bhd
Aug 8, RM6.43
Maintain neutral with unchanged target price of RM6.82: Petronas Chemicals (PetChem) is expected to see a lacklustre share price performance on the back of plunging crude oil, which fell by 13% to US$86.90 (RM261.57) per barrel up to last Friday, compared with a one-month high of US$99.90 per barrel on July 27, 2011. PetChem's share price declined accordingly, losing 6.1% for the same period.
PetChem's 2Q results, expected to be released at the end of this month, are likely to see lower product sales volume and margins that might drag its quarter-on-quarter (q-o-q) earnings growth. Judging from Malaysia's petroleum products exports in April to May 2011, which only accounted for about 50% of the total in 1QCY11, we reckon the potential shortage in feedstock supply due to natural gas curtailment has affected PetChem's production. Note that PetChem is the largest petrochemical producer in Malaysia and export sales contributed about 55% of its total revenue in FY10.
We also expect PetChem to record a flat or marginally lower profit margin in 2Q due to a narrow average product price spread. Based on our estimates, the average price spread of ethylene/natural gas declined by US$43 per tonne to US$945 per tonne and polyethylene/ethylene by US$3 per tonne to US$198. Our view coincided with the fact that Thailand-listed PTT Chemical and Saudi Arabia-listed Yanbu National Petrochemical's earnings before interest, tax, depreciation and amorisation margin was -1% and -1.8% points q-o-q lower. Like PetChem, both companies use primarily natural gas as their feedstock.
Our full year earnings per share (EPS) forecast is still 8.6% lower than the annualised figure based on 1Q earnings. This is in line with our expectation that q-o-q results might be weaker. As such, we are maintaining our earnings estimates at the moment pending the 2QFY11 results announcement. The year-on-year EPS growth forecast for FY12 is still estimated at 13.8%. Given the current share price, the upside is only 3.5%. We maintain our 'neutral' recommendation for PetChem with unchanged target price of RM6.82, derived from 16 times 2012 EPS. ' MIDF Research, Aug 8
This article appeared in The Edge Financial Daily, August 9, 2011.
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