Kenanga Research said the division is expected to see a recovery in margins and volumes, driven by a gradual recovery in the European economy.
PETALING JAYA: Petronas Chemicals Group Bhd
’s (PetChem) specialty chemical division is on track for a better 2025.
According to Kenanga Research, the division is expected to see a recovery in margins and volumes, driven by a gradual recovery in the European economy.
This recovery will be supported by initial rate cuts from central banks.
Additionally, China’s vague but accommodative economic measures could further boost demand for specialty chemicals.
“Reflecting this improved outlook, we revise our financial year 2025 (FY25) profit forecast for PetChem’s specialty division to RM165.1mil.
“This is up from an earlier assumption of RM30mil,” stated Kenanga Research.
The specialty chemical division’s recovery is one of the key factors prompting Kenanga Research to upgrade its call for PetChem to “outperform,” with a higher target price of RM5.47 per share, up from RM5.
Other reasons for its bullishness included PetChem’s superior margins versus its peers, due to a favourable cost structure, and signs that polyolefin prices are bottoming as the global business cycle stabilises.“We revise our FY25 core profit by 10% to reflect higher polyolefin price assumptions (US$1,150 per tonne from US$1,000 per tonne earlier) and higher specialty division profit.”
The research house believed that PetChem’s share price, which has dropped by 33% since May 2024, has already factored in the worst-case scenario for the Pengerang Integrated Complex’s (PIC) loss.
The loss, estimated at RM780mil due to weak polyolefin-olefin spreads, implies an earnings before interest, taxes, depreciation and amortisation breakeven scenario at 80% utilisation for FY25.
“That aside, we hold a slightly more bullish outlook on its olefin and derivatives division with a price assumption of US$1,150 per tonne on the back of the business cycle thesis, arriving at a FY25 price-to-earnings ratio of 12.9 times.
“This is significantly below its five-year average of 15.7 times,” the research house added.
Overall, Kenanga Research is positive that PetChem is approaching an inflection point next year.
Looking ahead, the research house said weaker-than-expected economic growth globally, leading to weaker petrochemical prices, poses a downside risk to its call for PetChem.
Other downside risks include PIC costs exceeding estimates and worse-than-expected oversupply in specialty chemicals, particularly in the European region.
