Kenanga Research said it has cut its FY24 to FY25 net profit forecast.
PETALING JAYA: Analysts have cut Petronas Chemicals Group Bhd
’s (PetChem) profit forecasts after its recent financial results came in below expectations.
Maybank Investment Bank Research said in a report that it has cut its net profit forecasts for the financial years ending 2024 to 2026 (FY24 to FY26) for the company by 7%, 22% and 11%, respectively, to account for lower product spreads and higher interest expense arising from consolidation.
“Our target price is reduced to RM3.82 based on a FY25 price earnings ratio (PER) of 17.5 times, at parity to its seven-year mean. Given the challenging outlook, we advise investors to avoid the petrochemical sector for the time being. Maintain sell,” it told clients.
Kenanga Research said PetChem’s nine-month FY24 results were below its estimate due to higher-than-expected losses from the Pengerang Integrated Complex (PIC).
“Overall, product spreads improved slightly year-on-year, while sales volume recovered due to lower maintenance.
“While industry macro is improving, we believe sustained losses from the PIC will still cloud its near-term outlook,” it said.
It also cut its FY24 to FY25 net profit forecast, and reduced its target price for the stock by 9% to RM5 from RM5.52.
However, it is maintaining its “market perform” call on the counter.
It said PetChem is trading at close to its five-year mean PER of 15 times, and a potential catalyst would be if the PIC proves to show a better earnings turnaround path.
Kenanga Research noted that polyolefin prices had begun to recover, currently hovering slightly above US$1,000 per tonne.
With the gradual recovery of the Chinese and European industrial economies, the research house is expecting polyolefin prices to be slightly stronger in FY25.
“On the other hand, urea prices are expected to range at US$300 per tonne, which is at its eight-year average price as the demand and supply gets into a balanced state globally, suggesting that its fertilisers and methanol division is likely to be stable in FY25,” it added.
Kenanga Research said it liked the company due to signs of recovery of polyolefin prices supported by firm crude oil prices.
The research house also liked PetChem because of recovery in its specialty chemicals division will be sustained in FY24 after a turnaround in FY23 and its superior margins compared to its peers due to a favourable cost structure is a positive factor.
“However, the upside to its share price is capped by the impending full commercial operations of the PIC which is likely to be in the red.
“Even after excluding the startup losses from the PIC, the FY24 earnings still imply a PER of around 15 times, which is still at its five-year historical average.”
The research house maintains its “market perform” call on the firm.
PetChem’s performance in the third quarter was “severely affected” by foreign exchange losses, mainly for its investment in PIC.
During the quarter under review, the US dollar weakened against the ringgit to RM4.107 on Sept 30, 2024, from RM4.721 on June 30, 2024, which negatively impacted the group’s bottom line.
The group swung to a net loss of RM789mil from a net profit of RM424mil in the year-ago quarter, translating to a loss per share of 10 sen against an earnings per share of five sen previously.
