Tuesday, 22 January 2013

Petronas Chemical - No go for BASF's Penegerang JV HOLD


-  We maintain our HOLD call on Petronas Chemicals Group (PChem), with an unchanged fair value of RM6.70/share, pegged to an FY13F EV/EBITDA of 7.5x which is at a 6% discount to Thailand’s PTT Global Chemicals’ 8x.

-  PChem’s heads of agreement (HOA) with Germany’s BASF to set up a specialty chemicals facility via a 40:60 joint venture at the Refinery and Petrochemicals Development (RAPID) in Pengerang, Johor has been mutually terminated.

-  But PChem said that its 40:60 JV with BASF for the current complex in Gebeng is still studying the feasibility of expanding its present glacial acrylic acid capacity and a new super absorbent polymer division. 

-  But this does not mean that Petronas is not going ahead with its RAPID project in Johor as there are three other petrochemical companies that have indicated interest in setting up operations in Pengerang. 

-  Recall that ITOCHU Corporation and PTT Global Chemical Public Company have signed HOAs to jointly own, develop, construct and operate two separate complexes for the production of high value-added downstream chemicals. Also, Italy-based Versalis SpA has signed a HOA with Petronas to build and operate elastomer plants at RAPID.

-  We maintain FY12F-FY14F earnings which have not accounted for any contributions from the prospective RAPID JV with BASF. Even if this project had been successfully launched, the construction period of 3-4 years would mean that production could start only in FY16F.

-  We expect the group’s upcoming 4QFY12 results next month to be challenging due to an additional RM560mil charge from the discontinuation of the group’s vinyl business. Also, petrochemical prices had been generally mixed since the end of September. From October to December this year, naphtha and polyethylene prices were down 2%, while methanol fell 14%. But paraxylene and benzene prices were up 6%-17% during this period. 

-  The stock currently trades at a fair FY13F EV/EBITDA of 6.8x, which is at a 15% discount to PTT Global Chemicals. 

Source: AmeSecurities 

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