PetChem falls 5.4% after steep decline in profitability

It is the biggest decline in almost 4 years, erasing about RM3.4b from the company’s market capitalisation


PETRONAS Chemicals Group Bhd’s (PetChem) shares noted their steepest decline in close to four years after a weak third-quarter (3Q) showing, with petrochemical market to remain challenging on moderating global growth and potential oversupply.

For the 3Q ended Sept 30, 2019, PetChem’s net profit fell 54% year on- year (YoY) to RM553 million from RM1.21 billion previously, largely owing to compressed margins and lower overall average product prices amid declining oil prices and softer market demand.

The 3Q19 revenue declined 24% YoY to RM3.67 billion from RM4.83 billion last year, due to lower product prices. This was partially offset by higher sales volume and the weaker ringgit.

For the first nine months of 2019 (9M19), PetChem’s net profit slid 34.7% YoY to RM2.47 billion against RM3.78 billion the year prior, while turnover came in 16.3% lower at RM12.14 billion versus RM14.51 billion previously.

“The petrochemical product prices have stabilised, but market outlook remains soft due to lower global GDP growth and expected additional capacities coming on-stream,” MD and CEO Datuk Sazali Hamzah (picture) said in a statement yesterday.

He said this has resulted in a “long market”, though market fundamentals remain strong in the Asia-Pacific market.

Shares in PetChem, which is 64.35%-owned by Petroliam Nasional Bhd (Petronas), shed 5.4% or 42 sen to close at RM7.38 yesterday — the biggest decline in almost four years and erasing approximately RM3.36 billion from the company’s market capitalisation.

The company’s earnings per share of seven sen and RM3.67 billion in sales for 3Q19 also fell below estimates, according to Bloomberg data.

Its peer, Lotte Chemical Titan Holding Bhd, was also adversely impacted by the challenging petrochemical industry which has been on a downturn since late last year, driven by slowing growth in both demand and industrial activities.

The South Korean-controlled petrochemical producer’s net profit dropped 58% YoY to RM91.3 million in 3Q19 on weaker product prices — a consequence of both the US-China trade war and softening global economic growth.

Despite industry challenges, PetChem managed to improve its plant utilisation to 93% in the 9M19 from 91% in the corresponding period in 2018, helping to push the company’s overall production and sales volume.

Sazali said the company’s performance demonstrates its resilience and focus on delivering value through effective turnaround management and high plant reliability which resulted in higher utilisation rates.

“On the commercial front, we optimised our cost-to-serve and further increased our market share by shifting more volume into the Asean region,” he said.

“Given our robust business model and competitive position, we will continue sustaining the business and creating value through existing operations, while rigorously pursuing our growth agenda.”

He said the new facilities at the Pengerang Integrated Complex (PIC) remain on track to achieve commercial operations by yearend, with the company in the process of stabilising the plants to deliver additional capacity of a new product range.

The multibillion-dollar PIC project — a joint venture between Petronas and Saudi Arabian Oil Co — is slated to produce 3.3 million tonnes of petrochemical products per annum.

PetChem also completed the €163 million (RM745.5 million) acquisition of a 100% stake in the Netherlands-based Da Vinci Group BV on Sept 12, which is aimed at expediting the company’s expansion into differentiated and specialty chemicals.

“Da Vinci provides a compelling entry point for PetChem to grow into silicones business and enhance our competitive position in attractive end-markets,” Sazali said.

These markets include personal care, construction, paints and coatings, electronics, automotive and healthcare — particularly markets domiciled in the Asia-Pacific region.

PetChem has a combined production capacity of 12.8 million metric tonnes per annum and is predominantly involved in the manufacturing and sale of olefins, polymers, fertilisers and methanol.