MIDF Research keeps ‘Buy’ call on PetChem

by ANIS HAZIM / pic source: Petronas FB

MIDF Amanah Investment Bank Bhd (MIDF Research) has maintained its ‘Buy’ call on Petronas Chemicals Group Bhd (PetChem) and revised its target price to RM11.10 from RM10.68 after the group recorded its highest yearly result of RM7.3 billion in the financial year of 2021 (FY21).

MIDF Research revised PetChem’s yearly earnings forecast for FY22 and FY23 by 3% and 4% respectively on the back of its positive result and future prospects in tandem with the current commodity price trends.

“Regardless of the uncertainties of Covid-19-related global economic recovery, supply chain disruptions and price inflation, PetChem maintained its focus on plant operations and safety,” MIDF Research wrote in a research note on the chemical group last Friday.

PetChem recorded best-in-class plant utilisation rates of 93% with a total production of 10.4 metric tons (MT) per annum and an excellent safety record.

The group is optimistic the volatility in feedstock costs and natural gas due to the Russia-Ukraine conflict which will subside in the near future.

MIDF Research opined the issue of inflation and tight global supply of hydrocarbons as well as the ongoing Covid-19 pandemic could still be risks even with the conflict resolved.

On China’s lockdown, PetChem stated demand for its products would be unabated in China and had taken steps to ensure the distribution was not deeply affected.

According to MIDF Research, China contributed 16% to PetChem’s sales in FY21, hence, making it one of the group’s most crucial foreign markets, and will continue to be in calendar year 2022 (CY22).

MIDF Research added PetChem has been given the green light to prioritise improving its cashflow from operations as well as operational and commercial excellence of its products.

Notably, its wholly-owned subsidiary, BRB International bv has strengthened its growth prospects and presence in the South-East Asian (SEA) region as a key silicone manufacturer.

“The group has recently received its final investment approval for a melamine factory in Gurun, Kedah, which could make PetChem as the only melamine producer in SEA,” it noted.

On another note, PetChem has identified and is working assiduously on prospects of mergers and acquisitions in CY22.

MIDF Research added that PetChem also made significant progress in instilling sustainability in its core operations to ensure alignment with the economic, environmental and social pillars.

“In FY21, the group reportedly succeeded in establishing the Clean Zero Carbon Emission Plan 2050, which is suitable for the chemical industry in guiding with climate impacts, business resilience and opportunities from climate change and economic circulars in mind,” it added.

PetChem shares closed eight sen lower at RM10.30 last Friday, giving it a market capitalisation of RM82.4 billion.