Stock Name: PCHEM
Company Name: PETRONAS CHEMICALS GROUP BHD
Petronas Chemicals Group Bhd
(Aug 11, RM6.15)
Maintain buy at RM6.19 with target price of RM8.15: Petronas Chemicals (PetChem) is expected to release its 2Q11 results on Aug 24. The quarter will be bogged down by major maintenance shutdowns and nationwide gas curtailment. Product volumes will be lower, but fortunately the higher product margin will help to offset this. Maintain 'buy', with an unchanged target price of RM8.15 based on 13.5 times 2012 price-earnings ratio, in line with global peers.
There was major scheduled maintenance during 2Q that necessitated complete shutdowns of 18 to 45 days at various plants across Peninsular Malaysia. In addition, Petroliam Nasional Bhd conducted maintenance on its gas fields which caused a reduced supply of natural gas. We estimate the combined impact will reduce PetChem's product volumes as much as 13.7% year-on-year (y-o-y) and 2.7% quarter-on-quarter (q-o-q).
Product margin (product selling price minus raw material cost) has risen by 44.1% y-o-y and 10.6% q-o-q to US$1,224 (RM3,672) per tonne in 2Q11. The global commodity run has pushed product prices up while PetChem's raw material prices, natural gas and its derivatives, have remained fairly stable.
We estimate PetChem's 2Q11 profit after tax and minority interest (Patami) at RM813 million (+18.7% y-o-y, -12.8% q-o-q). This is a far cry from its comparable peers, Saudi Basic Industries Corp and Yanbu Petrochemical Co, which enjoyed profit growth of 62% and 92% y-o-y.
Major scheduled maintenance during 2Q resulted in complete shutdown of 18 to 45 days at various PetChem plants. We expect PetChem's utilisation rates to rise in 2H11 as there are no further planned major maintenance shutdowns. Product margin continues to hold firm due to strong demand and restocking. We maintain our forecast despite 1H11 earnings likely to be below our initial expectations as we are confident that 2H11 will churn stronger profit with high margins.
The stock has been volatile recently due to the weak broader market and negative news flow on its Sabah urea plant. The state government is being a little resistant but we think it is the usual politics of negotiations and should be ignored. Any further dip in share price is a good opportunity to accumulate. ' Maybank IB Research, Aug 11
This article appeared in The Edge Financial Daily, August 12, 2011.
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Company Name: PETRONAS CHEMICALS GROUP BHD
| Research House: MAYBANK | Price Call: BUY | Target Price: 8.15 |
Petronas Chemicals Group Bhd
(Aug 11, RM6.15)
Maintain buy at RM6.19 with target price of RM8.15: Petronas Chemicals (PetChem) is expected to release its 2Q11 results on Aug 24. The quarter will be bogged down by major maintenance shutdowns and nationwide gas curtailment. Product volumes will be lower, but fortunately the higher product margin will help to offset this. Maintain 'buy', with an unchanged target price of RM8.15 based on 13.5 times 2012 price-earnings ratio, in line with global peers.
There was major scheduled maintenance during 2Q that necessitated complete shutdowns of 18 to 45 days at various plants across Peninsular Malaysia. In addition, Petroliam Nasional Bhd conducted maintenance on its gas fields which caused a reduced supply of natural gas. We estimate the combined impact will reduce PetChem's product volumes as much as 13.7% year-on-year (y-o-y) and 2.7% quarter-on-quarter (q-o-q).
Product margin (product selling price minus raw material cost) has risen by 44.1% y-o-y and 10.6% q-o-q to US$1,224 (RM3,672) per tonne in 2Q11. The global commodity run has pushed product prices up while PetChem's raw material prices, natural gas and its derivatives, have remained fairly stable.
We estimate PetChem's 2Q11 profit after tax and minority interest (Patami) at RM813 million (+18.7% y-o-y, -12.8% q-o-q). This is a far cry from its comparable peers, Saudi Basic Industries Corp and Yanbu Petrochemical Co, which enjoyed profit growth of 62% and 92% y-o-y.
Major scheduled maintenance during 2Q resulted in complete shutdown of 18 to 45 days at various PetChem plants. We expect PetChem's utilisation rates to rise in 2H11 as there are no further planned major maintenance shutdowns. Product margin continues to hold firm due to strong demand and restocking. We maintain our forecast despite 1H11 earnings likely to be below our initial expectations as we are confident that 2H11 will churn stronger profit with high margins.
The stock has been volatile recently due to the weak broader market and negative news flow on its Sabah urea plant. The state government is being a little resistant but we think it is the usual politics of negotiations and should be ignored. Any further dip in share price is a good opportunity to accumulate. ' Maybank IB Research, Aug 11
This article appeared in The Edge Financial Daily, August 12, 2011.
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