PetChem’s 2Q19 net profit down 22.2% on lower revenue, higher taxes

The group anticipates product prices for the olefins, derivatives segment to stabilise in the 3Q


PETRONAS Chemicals Group Bhd (PetChem) expects its product prices to stabilise at current levels as lower prices ate into profit despite higher plant utilisation rates in the second quarter (2Q).

The chemical group’s net profit slipped 22.2% to RM1.12 billion in the 2Q ended June 30, 2019 (2Q19), from RM1.44 billion recorded a year ago, in line with lower revenue and higher tax expense.

Revenue for the period was 8.2% lower at RM4.34 billion compared to RM4.73 billion registered the year prior, largely due to lower product prices partially offset by higher sales volume and a weaker ringgit against the US dollar.

Pretax earnings fell by RM290 million or 16% to RM1.5 billion as revenue fell, the group said in an exchange filing yesterday.

PetChem said its performance for the remaining financial year will be primarily influenced by global economic conditions, foreign-exchange rate movements, utilisation rates of production facilities and petrochemical products prices which have a high correlation to crude oil prices, particularly for the olefins and derivatives segment.

“The utilisation of our production facilities is dependent on plant maintenance activities and sufficient availability of feedstock, as well as utilities supply. The group will continue with its operational excellence programme and supplier relationship management to sustain plant utilisation levels at above the industry benchmark,” its filing noted.

Growth will come from the start of commercial activity of its new facilities at the Pengerang Integrated Complex which are 98.95% complete and scheduled to start commercial operation in 4Q19.

The group anticipates product prices for the olefins and derivatives segment to stabilise in the 3Q, while fertiliser and methanol product prices should also stabilise.

The group recorded 100% plant utilisation, an improvement from 95% in the same quarter last year, mainly due to better plant performance at its methanol and propane dehydrogenation plants. Correspondingly, production and sales volumes increased.

Overall average product prices for the group decreased from the corresponding quarter a year ago in tandem with declining crude oil prices and softer market demand.

In the group’s olefins and derivatives segment, plant utilisation was higher at 97% during the quarter compared to 88% last year, primarily contributed by improved plant performance.

Production volume increased following better plant performance, although sales volume was comparable due to inventory build-up in preparation for plant statutory turnaround activity in the upcoming quarter.

Average product prices for the segment declined as crude oil prices decreased, coupled with softer market demand.

Revenue for the segment was lower by 15% or RM405 million at RM2.3 billion, as a result of lower product prices and sales volume. Pretax earnings fell by 31% or RM296 million to RM649 million, mainly due to lower revenue.

Profit after tax was also weaker by 40% or RM280 million at RM413 million in line with lower pretax earnings, partially offset by lower tax expense.

In the group’s fertilisers and methanol segment, plant utilisation was better at 100% versus 99% in the previous corresponding quarter, leading production and sales volume to increase as well. Average product prices for the segment declined as crude oil prices fell.

Revenue for the segment fell by 1% or RM26 million to RM2 billion due to lower product prices, partially offset by higher sales volume and a weaker ringgit against the greenback, the downstream arm of Petroliam Nasional Bhd noted.

Pretax earnings rose by 4% or RM35 million mainly on lower operating expenditure, while profit after tax fell by 6% or RM47 million following higher tax expense.

The group’s total assets increased by 1% or RM507 million to RM37.9 billion during the quarter, largely on the increase in property, plant and equipment in relation to the capital investment in the petrochemicals projects within the Pengerang Integrated Complex.

Cash and cash equivalent expanded by 4% or RM483 million to RM12.8 billion, contributed by profit generated during the period, partially offset by dividend payment to shareholders.

The group has declared an interim dividend of 11 sen per share for the quarter, to be paid on Sept 13, 2019.