Petronas Chemicals Group - 2Q12 results below expectations

Period    3Q12

Actual vs. Expectations   At 69% of our FY12 full year estimate and 70% of the consensus estimate, the 9M12 net profit of RM2.62b came in below expectations, due to plant maintenance in 3Q12 

Dividends   No dividend was declared during the quarter

Key Results Highlights    The 3Q12 net profit declined 13% QoQ to RM742m due to a flattish top line (+1%) that was hit by a lower utilisation rate due to the plant maintenance at the Fertilisers & Methanol (F&M) segment. F&M reported a 3Q12 EBITDA which dipped 26% to RM361m. The overall sales volume and ASP were maintained at the same levels although limitations of the feedstock supply did affect both the Olefins & Derivatives (O&D) and F&M segments. 

 YoY, the reported net profit contracted by 38% as revenue dropped 15% in the year due to lower prices and volumes coupled with the feedstock constrain at the O&D segment while F&D was hit by the abovementioned plant maintenance. This caused the O&D’s EBITDA to decline 31% to RM900m while F&M’s EBITDA plunged 40% from RM606m in 2Q11.

 For the YTD, the 9M12 net profit slid 10% to RM2.62b from RM2.91b last year, although the revenue only fell slightly by 1%. This was due to the weaker O&D segment, which reported a 9M12 EBITDA that fell 15% to RM2.92b due to higher feedstock prices and lower ASP coupled with a lower associate income (-42% YoY). Meanwhile, F&M posted better income with 9M12 EBITDA rising 6% to RM1.35b on a higher ASP. 

Outlook   Despite a weak 3Q12, we remain hopeful of a better 4Q12 due to seasonal factors, especially for O&D on restocking activities and this should help support PChem’s 4Q12 earnings.

Changes To Forecasts   We are cutting our FY12-FY14 EPS and GDPS by 2%-7% based on the following new assumptions:

- lower F&M’s utilisation rate to 75.2% from 80.8% for FY12; but no change to FY13 & FY14 assumptions of 84.0% & 85.0%

- new USD/MYR rates of 3.12, 3.06 & 2.91 for FY12-FY14 vis-à-vis 2.95, 2.85 & 2.83 previously;

- lower oil prices (USD/bbl) to 96, 95 & 99 for FY12-FY14 from 101, 107 & 109 previously. 

Rating  Maintain OUTPERFORM

Valuation    Post-earnings revision and with the unchanged CY13 targeted PER of 14.5x, our new price target is now RM6.86/share from RM6.99/share previously. Our targeted PER is in line with its recent PER high of 14.4x in Oct. 2011 after normalising from the peak of 20x in Mar 2011.   

Risks   A weaker USD vs. MYR rate and a sudden drop in crude oil prices.    

Source: Kenanga