by M JAY SHEILA / pic source: PETRONAS FB

PETRONAS Chemicals Bhd (PetChem) has been downgraded to ‘Hold’ from ‘Buy’ at Hong Leong Investment Bank Bhd (HLIB Research) as it advised investors to lock in profits and embrace the likely outcome of a petrochemical bear cycle in 2023.

“Our findings have indicated that product spreads (High Density Polyethylene [HDPE], low density polyethylene [LDPE], Linear Low Density Polyethylene [LLDPE], urea and methanol) have come off from their respective peaks in the first half of 2022 (1H22). In view of an imminent normalisation in product spreads, we believe that PetChem’s profits will peak in financial year 2022 (FY22) and decline in FY23F,” it said in a research note today.

It has lowered the target price (TP) to RM9.20.

In a separate report, CGS-CIMB Securities Sdn Bhd has also downgraded PetChem from ‘Hold’ to ‘Reduce’, with a lower end-calendar years CY23F TP of RM8.37 as CGS-CIMB expects further price weakness next year.

It has forecasted that PetChem will see earnings decline in the next two years. Nevertheless, it said its forecast dividend per share (DPS) of 44 sen in FY23F might limit overall downside.

Kenanga Investment Bank Bhd (Kenanga Research) has maintained its ‘Outperform’ call with a TP of RM11 while MIDF Amanah Investment Bank Bhd has retained its ‘Buy’ call with revised TP of RM11.77 per share.

Kenanga Research also said that the company’s product prices might see mild tapering.

“With the dampening of downstream demand amid inflationary pressures and recessionary concerns, coupled with more capacities resuming operations, especially from China, we see a possible moderation of petroleum product prices in the near-to-mid-term. That said, we firmly believe that product prices will remain elevated compared to 2020-2021 levels,” it said.

Kenanga Research said that it continued to like the company as a beneficiary of the elevated crude oil price environment.

“Given its arrangement with Petroliam Nasional Bhd, (PetChem) benefits a more favourable feed-cost structure, while peers may be hampered by the volatile input costs. Additionally, (it) also enjoys dominant market share regionally, which will be further cemented by Pengerang Integrated Complex (PIC) — increasing its capacity by ~15% when it eventually starts commercial operations,” it said.

In a Bursa Malaysia filing yesterday, PetChem posted a net profit of RM1.9 billion compared to RM1.96 billion in the previous corresponding quarter due to softer margins and lower contributions from joint ventures and associates.

For the nine months, its net profit increased to RM5.84 billion from RM5.29 billion, while revenue improved 26.2% to RM20.25 billion from RM16.05 billion.

The group’s earnings per share dropped to 24 sen in the third quarter 2022 (3Q22).

At 11.45am today, PetChem’s share dropped sharply to RM8.67 from its earlier day close of RM9.08.