MaybankIB Research has lowered its earnings estimates for PetChem by 18% to 24% for 2023-2024. — Bloomberg
PETALING JAYA: The outlook remains subdued for Petronas Chemicals Group Bhd
(PetChem) amid the persistent headwinds in the global petrochemical industry.
While there are hopes the petrochemical giant could see a recovery in earnings next year, most analysts expect the second half of 2023 (2H23) to remain soft for the group, which had underperformed market expectations in 1H23.
Maybank Investment Bank (MaybankIB) Research said in a report that 2H23 would be equally challenging for PetChem due to unabating macro headwinds.
These include high interest rates and inflation; supply-side surpluses from new polyolefin capacities in China and the United States; as well as lower production volumes from statutory turnarounds or scheduled maintenance in the third quarter (3Q) and 4Q of 2023.
As such, the brokerage has lowered its earnings estimates for PetChem by 18% to 24% for 2023-2024.
On a positive note, however, Maybank IB Research said the worst was likely over for PetChem after a weak performance in 1H23.
“As average selling prices (ASPs) have likely approached a bottom, we are more optimistic about improving market conditions and a potential recovery in 2024,” it said, noting that ASPs have turned firmer in 3Q23 on the back of elevated crude oil price.
Maybank IB Research maintained “hold” on PetChem with a higher target price (TP) of RM7 a share, up from RM6.85.
MIDF Research, on the other hand, lowered its TP for PetChem to RM6.72 a share from RM7.04 previously while keeping its “neutral” call on the counter, given the continuously challenging outlook.
“PetChem’s performance is tied to the global economic climate in terms of rate hikes and inflationary pressures; petrochemical product prices in correlation with Brent crude oil prices; utilisation rate of production facilities; and fluctuations in foreign exchange rates.
“However, we opine that the improvement from China’s economic recovery in 2023 will be the main catalyst to mitigate these challenges, in addition to higher demand amid sufficient supply and feedstock,” MIDF Research said.
PetChem posted a lower net profit of RM1.16bil in 1H23, as compared to RM3.95bil in 1H22, despite registering higher revenue of RM14.67bil in 1H23 versus RM13.22bil in 1H22.
Expecting 2H23 outlook to remain poor, CGS-CIMB Research reiterated “sell” on PetChem with a TP of RM5.70 a share.
The brokerage argued that the uptick in ASP in 3Q23 might not be sustainable.
“Analytics noticed that buyers are resisting further price hikes as they expect significant supplies from new capacity additions, ample imports from the Middle East and the United States, and because converters in China are still seeing weak finished-goods export orders.
“PetChem also guided that it expects the outlook for the specialties division to remain weak for at least one more year,” CGS-CIMB Research added.
Kenanga Research, which rated PetChem as “underperform” with a TP of RM6.20 a share, said global glut in petrochemicals would be protracted due to excessive capacity expansion in China and inventory destocking.
“We believe demand for petrochemicals will remain weak on the back of lingering concerns of a hard landing for the US economy, contagion from China’s property downturn and sluggish demand in China, particularly in the automotive sector,” it said.
Meanwhile, Hong Leong Investment Bank (HLIB) Research recommended “sell” on PetChem with a TP of RM5.40 a share.
The brokerage believed PetChem was still not out of the woods yet, as the uptick in olefins and derivatives product spreads might not sustain after the Golden Week and Deepavali festive holidays.
In addition, urea prices were normalising after the tenders open for the Rabi planting season in India, with only a short-term demand surge, while its unit Pengerang group in Johor had not consolidated its interest and depreciation expenses for its plants (about RM400mil annually) as of yet.
