Improving earnings outlook for PetChem with oil price recovery
KUALA LUMPUR: Petronas Chemicals Group Bhd ’s (Petronas Chemicals) recorded another commendable quarter as its earnings for the fourth quarter of financial year 2020 (4QFY20) came in at RM466 million -- in line with the recovery in oil price and gradual easing of Covid-19 restrictions worldwide.
This brings its FY20 cumulative earnings to RM1.629 billion which is within the expectations of MIDF Amanah Investment Bank Bhd (MIDF Research) and consensus expectations at 102 and 100 per cent respectively.
“When compared against 4QFY19, Petronas Chemicals’ revenue declined slightly by 9.4 per cent year on year (y-o-y). However, earnings climbed by 37.1 per cent y-o-y respectively,” MIDF Research said in its analysis.
“This was primarily due to lower sales volume recorded y-o-y following the disruption in demand arising from the worldwide Covid-19 health crisis, coupled with soft product prices from the low crude oil price.”
Despite the thin margins from arising from the low product prices, Petronas Chemicals recorded a sustained overall profit before tax (PBT) margin in 4QFY20 of 13.5 per cent versus 13.9 per cent in 3QFY20 and an improved PBT margin when compared against 4QFY19 of 8.7 per cent.
Also, despite the ongoing restrictions brought upon by Covid-19, MIDF Research saw that sales volume and average selling prices (ASPs) have continued to improve quarterover-quarter which helped to arrest earnings decline during the quarter.
On a quarterly sequential basis; revenue grew by 11 per cent quarter on quarter whilst earnings were flat quarterover-quarter respectively mainly due to net share of loss from joint ventures and associates incurred during the quarter.
The loss was arising from the cessation of its butanediol complex by an associate of the Group BASF Petronas Chemicals Sdn Bhd, MIDF Research said.
“While we note that the unabated Covid-19 pandemic will remain a challenge to Petronas Chemicals’ operational environment in FY21, we have turned more optimistic on the future earnings trajectory for the group.
“This is given that the recent uptrend in the crude oil price is expected to boost ASPs for petrochemical products; the global Covid-19 immunisation drive that will result in further easing of movement restrictions and restore demand back into the market, and Petronas Chemicals’ feedstock advantage from its parent company versus its regional peers.”