PetChem on track for record FY21, upgraded to ‘Buy’ with RM10.65 TP

O&D and F&M division main drivers for PetChem’s FY21 profit 


PETRONAS Chemicals Group Bhd (PetChem) on-track to record its best-ever annual profits in the financial year 2021 (FY21) driven by its olefins and derivatives (O&D) and fertiliser and methanol (F&M) division. 

Hong Leong Investment Bank Research (HLIB Research) analyst Jeremie Yap said the good performance will also be achieved on the back of resilient polyethylene product prices, elevated urea and methanol prices due to the cost-push effect from elevated feedstock (natural gas) price. 

He added that the product spreads remained relatively steady in the third quarter (3Q), as uptick seen in early 4Q. 

“We will be using high-density polyethylene, low-density polyethylene, and linear low-density polyethylene prices as indicators for PetChem’s product spreads. 

“We find that average polyethylene product prices remained somewhat firm, with a slight decline of 3%-9% in 3Q21 from 2Q21. We will not be surprised should there be a slight decline in profit contribution quarter-on-quarter (QoQ) from PetChem’s O&D segment in 3Q21,” he said. 

On the other hand, Yap said product prices were up 37%-61% year-on-year (YoY) in the first nine months of 2021 (9M21) which would augur well into the rest of 4Q21.

“Both urea and methanol prices continued their uptrend in 3Q21, up 16% and 6% respectively from 2Q21. Cumulatively for 9M21, urea prices were up 75% YoY, while methanol prices increased 66% YoY. 

“We believe that urea prices will continue their uptrend in the near-medium due to the cost-push effect from elevated feedstock (natural gas) prices. Hence, we expect PetChem’s F&M segment to buoy the group’s overall performance in the next few quarters,” he added. 

HLIB Research upgraded PetChem to ‘Buy’ from ‘Hold’ at RM8.75 with a target price of 

RM10.65 (from RM8.75) based on nine times FY22F EV/Ebitda, which is at a slight discount to its five-year historical pre-pandemic mean EV/Ebitda of 9.5 times. 

PetChem reported a stellar first half 2021 (1H21) core net profit of RM3.2 billion (+4.5x YoY) from RM691 million a year ago, lifted by increased product spreads and higher downstream polyethylene product pricing. 

This led to 1H21 revenue and profit of RM5.9 billion and RM1.8 billion respectively for its O&D segment and elevated urea and methanol prices in 2Q21, resulting in an impressive 1H21 revenue of RM3.8 billion and profit of RM1.4 billion. 


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