PCHEM (FV RM9.00- BUY) 1QFY12 Results Review: Back to Normal

Petronas Chemicals Group Bhd’s 1QFY12 results were within expectations. The good results were mainly contributed by higher production and higher plant utilisation as  its  ethylene cracker plant  did not encounter any  power  disruption like it did in the previous quarter. Hence, the sales of chemicals products jumped 23%. Maintain Buy, with  a  fair value of RM9.00.  The risks to our view include fluctuations in the international prices of petrochemical products, a potential drop in oil price in view of the ongoing debt and economic crisis in the EU – which may dampen  chemical prices  - and potential  global economic  slowdown which may sap demand for petrochemical products.

Within estimates. The 1QFY12 results were within consensus and our expectations, making up 25% of consensus and our FY12 forecasts respectively. Overall, the 1QFY12 numbers were better q-o-q, with revenue and net profit coming in higher at RM4389m and RM1019m  (up 12.4% and 38.6%  respectively),  contributed by higher production and higher plant utilisation as there was no power interruption  at  its ethylene cracker plant, unlike the last quarter. Consequently, chemical product sales jumped 23%. This was also despite incorporating a 6% lower average selling price. YTD revenue and net profit came in flat, with a marginal change of 0.9% and 3.3%.

Maintain Buy.  Our fair value for Petronas Chemicals remains unchanged at RM9.00, based on the existing PER of 18x FY12 EPS. We continue to like the company’s strong backing from Petronas Group, especially in keeping its feedstock prices low. Nevertheless, the risks to our view  are the fact that the company’s daily operations are subject to uncontrollable factors such as: i) fluctuations in the international prices of petrochemical products, ii) a potential drop in oil price as the European crisis continues to damp  chemical prices and negatively affect  margins, and iii) potential slowdown in the global economy, which could lead to slower industrial activities and hence lower demand for petrochemicals products.

Source: OSK