Pengerang plants’ low utilisation to hit PetChem’s FY21 earnings

by SHAHEERA AZNAM SHAH / pic courtesy of Petronas

DESPITE Petronas Chemicals Group Bhd’s (PetChem) hopeful anticipation for its projects at Pengerang Integrated Petroleum Complex to rake in more revenue, analysts opined it will drag the group’s financial performance next year.

Maybank Investment Bank Bhd (Maybank IB), in a research note last week, stated it expects the Pengerang plants to achieve poor operating earnings on the weaker than expected utilisation rate of below 60%, affecting the group’s financial year 2021 (FY21) and FY22.

“PetChem’s stronger earnings in the third quarter of 2020 (3Q20), was above our expectation on the lower than expected tax rate of 6%. Our FY20 earnings per share is raised by 6% as we lower our tax rate to 15% from 20%.

“The Pengerang joint-venture (JV) plants would commercialise gradually from 1Q21 and we expect start-up losses in FY21E,” it said.

Maybank IB added that excluding the foreign-exchange loss on revaluation of the shareholder loan to Pengerang JV of RM85 million, PetChem’s 3Q20 net profit made up 35% of the research house’s full-year forecast, while the 9M20 net profit made up 65% to 67% of its forecast.

For PetChem’s financial performance in 4Q20, the investment bank expects the group’s earnings to improve on a quarterly basis on stable average selling prices and higher sales volume.

“However, 4Q headline net profit will be hit by a one-off charge of RM232 million due to the cessation of its JV plant Butanediol (BDO) Complex. BDO faces significant overcapacity in the region and incurs RM5 million loss per month,” it said.

CGS-CIMB Securities Sdn Bhd expects petrochemical prices to continue to rally in November due to the disruption in the US production.

“With Hurricane Delta made landfall on the US Gulf in October, while it did not cause physical damage, it delayed the restart of US plants which were impacted by Hurricane Laura.

“While US plants all restarted by mid-to-late October, US inventories are very low and they are still unable to export polymers.

“Even if the US regains its export capability from early-2021, global petrochemical plant maintenance activity usually picks up during the 1Q. Hence, spot price strength may sustain into 1Q21,” CGS-CIMB said.

The broker expects PetChem to leverage the price rally and deliver its strongest quarter in 4Q20.

“PetChem only has one minor plant turnaround in 4Q20, which will likely allow it to achieve close to full utilisation rates,” it said.

Maybank IB is recommending a ‘Hold’ call for PetChem with an unchanged target price of RM6.45, while CGS-CIMB raised its target price for the group to RM6.18 from RM5.60.