Kenanga Research said the company is well-positioned to capitalise on future secular growth trends by further innovating its product offerings.
PETALING JAYA: Stiff competition and weak domestic demand in China remains a major concern for Petronas Chemicals Group Bhd
(PetChem).
Kenanga Research said the competition from Chinese specialty chemicals would remain intense throughout 2024 due to weak domestic demand in China, leading to an excess supply of specialty chemicals flooding the European and US markets.
“We believe that the supply situation will only improve gradually in 2025 at the earliest, and this will largely depend on the overall recovery of China’s economy, particularly in the industrial and construction sectors,” said the research house.
This was one of the key takeaways from the recent virtual session organised by the group.
The brokerage also noted that the construction industry in Europe, one of the largest drivers for PetChem’s specialty division, continues to face headwinds due to challenging market conditions.
However, it said a recovery is expected to begin in 2025 as interest rates are being lowered.
The consumer goods industry also remains slow and is expected to stay tepid throughout 2024, with a slight improvement possible in 2025.
With the group’s current product suite, Kenanga Research said it is well-positioned to capitalise on future secular growth trends by further innovating its product offerings.
Highlighted opportunities include safer housing environments, energy-saving and thermal management solutions, and carbon-neutral buildings.
One example is the shift towards safer materials (paints and coatings), where PetChem has developed polyol building blocks that enable the production of safe and sustainable inks and coatings.
Maintaining a “market perform” call on the stock with a target price of RM5.52, the research house said it already factored in the recovery of the specialty division, projecting an improvement from a loss position to RM100mil profit in financial year 2024 (FY24) and RM149mil in FY25, which it believes is more than sufficient to account for the recovering outlook of the specialty chemical industry.
For the second quarter ended June 30, 2024 (2Q24), PetChem registered a net profit of RM777mil or an earnings per share (EPS) of 10 sen with a revenue of RM7.73bil.
For the first half of the year (1H24), the group’s cumulative net profit amounted to RM1.45bil or an EPS of 18 sen as compared to RM1.16bil or an EPS of 15 sen in 1H23, on the back of a revenue of RM15.23bil against RM14.67bil in 1H23.
The board of directors has announced a first interim dividend of 10 sen per share, representing a payout of RM800mil or 55% of 1H24 earnings.
