KUALA LUMPUR: AffinHwang Capital Research forecasts Petronas Chemicals (PChem) to achieve a 15% sequential earnings growth in 2Q15, lifted by higher product selling prices, but dragged down by lower plant utilisation.
“At 17 times 2016E price-to-earnings ratio PER (26% above historical average, 33% above regional peers), we believe that the positives are priced in. Maintain Sell with an unchanged target price of RM5.75 based on 14 times 2016E PER,” it said on Tuesday.
AffinHwang Research said that driven by supply constraints, and higher crude oil and naphtha prices (both +13% on-quarter), regional polymers prices staged a strong sequential rebound in 2Q15 (+14% to +20% on-quarter).
The research house also noted higher aromatics prices, partly attributable to a fire incident at Dragon Aromatics in April that lowered regional supply.
Similarly, methanol prices have also strengthened in 2Q15 by 20% on-quarter on tightening supply and higher energy prices while the 2Q15 fertiliser prices were relatively flat on-quarter as ample supply limited price gains.
“We expect the higher product selling prices and better price spread to drive sequential earnings growth. However, a scheduled maintenance at its ethylene oxide plant and a fire incident at its Kertih silo will likely lower its 2Q15 plant utilisation (from the above-average 90% achieved in 1Q15), thereby partly restricting the earnings rebound. Overall, we forecast PChem to achieve a 15% jump in sequential earnings to over RM700mil in 2Q15,” it said.
It said tracking the global oil price trend, prices of polymers, aromatics and methanol have weakened noticeably in July 2015 (-3% to –10% versus 2Q15 average prices).
The weak global oil prices, if prolonged, may continue to pressure the product selling prices and weaken profit margins.
“In our view, PChem’s business outlook is still challenging, given: (i) weak regional demand growth (attributable to China’s slower economic growth); and (ii) lower oil prices will weigh on ethylene and polymer prices, which, in turn, will affect its profit margins for the ethylene products (a key earnings contributor to PChem’s olefins & derivatives segment),” it said.
