News Petronas Chemicals Group Bhd (PCHEM) announced
that the Heads of Agreement (HoA) between Petronas and BASF for a joint
speciality chemicals venture within the Refinery & Petrochemical Integrated
Development (RAPID) project in Pengerang, Johor, had been terminated by mutual
agreement.
This is because both
parties were unable to come to an agreement on the terms and conditions for the
implementation of the proposed venture.
To recap, the HoA was
signed on 5 Mar 2012 for a proposed partnership to jointly own, develop, construct
and operate production facilities for a host of speciality chemical products in
RAPID.
Comments This
is definitely a negative surprise as BASF is the key partner of PCHEM. With the
RM60b ETP project still under EIA study, the RAPID project could hit a snag on
this turn of event as BASF is a world-leading chemical company.
We understand from
PCHEM that this termination of HoA will not affect their existing business ventures.
In fact, with this termination, both parties are now looking to expand the
capacity at their existing facility in Kuantan.
Meanwhile, the EIA
study for the RAPID project is expected to be concluded in June this year.
Outlook We
expect no near-term impact on the company’s financial performance, but this negative
news is likely to affect the sentiment on the share price negatively.
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 No changes to our FY12E-FY14E earnings estimates.
Rating MAINTAIN
OUTPERFORM
Valuation We are maintaining our target price of RM6.86/share
based on an unchanged CY13 targeted PER of 14.5x. 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
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