PetChem’s 3Q21 backed by strong demand in F&M segment

Prices could remain resilient in the near term, buoyed by rising pressure of higher feedstock cost amid soaring gas prices

by ANIS HAZIM / Pic credit: Petronas

PETRONAS Chemicals Group Bhd (PetChem) saw its polyethylene (PE) prices recover in the third quarter of 2021 (3Q21) backed by resilient demand at its fertilisers and methanol (F&M) segment.

RHB Investment Bank Bhd (RHB Research) analyst Sean Lim stated on average, the group’s PE prices were still lower 3%-9% quarter-on-quarter (QoQ) in 3Q21.

“On the flip side, we expect the F&M segment to be firmer as average selling prices (ASPs) have strengthened QoQ on the back of tight global supply.

“Prices could remain resilient in the near term, buoyed by rising pressure of higher feedstock cost amid soaring gas prices,” Lim stated in a note on the company yesterday.

PetChem has secured all its gas feedstock, which contributed 95% of total feedstock, from its parent company, Petroliam Nasional Bhd (Petronas).

This enables it to enjoy fixed feedstock costs for the olefins and derivatives segment, while F&M margins are relatively stable as methane is sold to PetChem at a fixed percentage of the product prices, which is then benchmarked to the average of a basket of global urea prices, Lim added.

PetChem’s Pengerang Integrated Complex (PIC) plant is likely to face further delay and gradual start-up to be fully operational by 1Q22. “PetChem is still looking to achieve 60%-70% utilisation in 2022. We believe PIC will incur minimal losses in the first half of 2022 (1H22) and only start contributing minimally in 2H22,” he said.

The analyst expects the group’s 3Q21 utilisation to improve from 97% in 2Q as its plant utilisation stood at 94% in 1H21.

“Average plant utilisation could be higher than the earlier guidance of 93%-94% as management has postponed some plant turnaround to 2Q22 riding on favourable ASPs,” noted the analyst.

RHB Research raised its financial year 2021-2023 forecast (FY21F-23F) earnings of PetChem by 3%-19% on the back of stronger petrochemical prices.

“Despite projecting 18% decline in FY22F earnings, valuation remains attractive, trading below its five-year mean,” he added.

The analyst kept a ‘Buy’ call on the company and lifted its target price (TP) to RM9.91 (from RM9.11), pegged to an unchanged nine times FY22F enterprise value/ Ebitda, thus giving a 14% upside and 3% FY22F yield.

The downside risks to the forecast for PetChem could be weaker-than-expected petrochemical prices and plant utilisation rates.

PetChem shares rose 14 sen yesterday to RM8.83, valuing the downstream company for RM69.52 billion.