PETRONAS Chemicals Group Bhd’s (PetChem) counter is still a ‘Sell’, but with a lower 52-week target price (TP) of RM6.50 due to expected lower earnings, at a local research house.

In a research note released this morning, Affin Hwang Investment Bank Bhd said it has cut the company’s earnings forecasts for 2023-25 by 12-17% imputing a lower urea price assumption.

Its earlier TP was RM7.07. PetChem was trading at RM7.06 at 2.45pm today, up nine sen from its close yesterday. The counter hit its 52-week high of RM10.26 on May 31, 2022 and its 52-week low of RM6.67 on March 24, 2023.

In reports toward end-April, Maybank Investment Bank Bhd had a ‘Hold’ call for the counter at a TP of RM7.35, while HLIB Research maintained ‘Sell’ with an unchanged TP of RM6.54. 

Petchem is 64.4%-owned by national oil company Petroliam Nasional Bhd (Petronas).

With a sharp 2023 earnings decline expected, it said it does not see any catalyst for the stock.

On the flip side, it said key upside risks to its call include a rapid petrochemical product average selling prices (ASPs) recovery, quicker Pengerang Integrated Complex (PIC)/specialty chemical business turnaround, and improved margins.

In the note, Affin Hwang said fertiliser and methanol (F&M) product ASP headwinds were likely to drag 2023 earnings lower.

The high urea and methanol prices had benefited PetChem over the past two years, it said, making up about 25%-30% of their revenue.

However, it noted that with European manufacturers ramping up nitrogen fertilizer production following the sharp decline in gas prices, the F&M price outlook is bleak.

Affin Hwang had joined a knowledge-sharing session hosted by PetChem on specialty chemicals, joined by Da Vinci Group BV, widely known as BRB, and Perstorp Holding AB, two companies it acquired in 2019 and 2021 respectively, as part of the overall business diversification strategy.

It noted that the specialty chemical segment recorded RM113 million net profit, or 2% of 2022 group profit.

With the global specialty chemical market expected to grow at a compound annual growth rate of 4%-4.5% over 2022-2030, it said BRB and Perstorp are well positioned in the automotive, electronics, personal care, food nutrition and feed segments to ride the strong secular growth trend.

PetChem has set a long-term goal to achieve 30% of revenue from the specialty chemical business (from current about 20% level) by 2030 and operating cash flows to grow by 50% by 2025 through maximizing value and cost optimisation.

Despite the aggressive target, it said Petchem management retained its annual capital expenditure spending guidance at RM2.5 billion. — TMR / pic source: PetChem