Petronas Chemicals’ 1H17 earnings exceed expectations

KUCHING: Petronas Chemicals Group Bhd’s ( Pe t ronas Chemicals) recorded betterthanexpected first half of 2017 (1H17) results, analysts say.

In a filing on Bursa Malaysia, Petronas Chemicals’s profit after tax for the cumulative quarter ended June 30, 2017 doubled from RM1.2 billion in the corresponding period to RM2.4 billion on higher volumes and improving product spreads.

According to the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research), cumulative first six months of financial year 2017 ( 6MFY17) earnings of RM2.404 billion exceeded its and consensus expectations, accounting for 67 per cent and 75 per cent of its full year earnings estimates respectively.

MIDF Research was previously expectingoverallplantutilisation rate(PUR)tobelowercoupledwith product prices softening in the second quarter of FY17 (2QFY17) onwards.

Meanwhile, at 61 per cent and 63 per cent of the research arm of Kenanga Investment Bank Bhd’s ( Kenanga Research) and street’s FY17 estimates, respectively, Petronas Chemicals’ 1H17 net profit of RM2.26 billion came within expectations.

Kenanga Research noted that 2H17 is anticipated to be weaker as plant utilisation ( PU) are expected to be at low- 90 per cent owing to three scheduled turnaround activities taking place in the next six months as compared to only one turnaround in 1H17.

“With two turnaround activities scheduled in 3Q17 and one in 4Q17, PU in 2H17 is likely to be lower than 1H17 while FY18 is also expected to be another heavy turnaround maintenance year before two years of light maintenance in 2019 and 2020.

“Meanwhile, with high volatility of crude oil prices, petrochemical price’s outlook remains challenging,” the research arm said.

It added that prices for olefins and derivatives ( O& D) is set to be firmer in 3Q17, but price outlook for Fertilisers and Methanol (F& M) is expected to be bearish in the near term due to lower demand but oversupply situation.

“Although 2H17 earnings are expected to be weaker, we still see upside on the stock given its undemanding valuations,” the research arm said.

Thus, Kenanga Research maintained its ‘outperform’ rating.

On the other hand, due to the better- than- expected results, average selling prices (ASPs), PUR and also lower operating expenses, MIDF Research increased its FY17 and FY18 forecasts by 28.9 per cent and 29.4 per cent, respectively.

As the product ASPs are strengthening and stabilising especially for the O& D segment and as the sales volume continue to pick up, the research arm turned optimistic on Petronas Chemicals expecting FY17 earnings to exceed RM4 billion.

“In addition, with the planned turnaround activities, the PUR is still expected to be around 90 per cent,” it said.

MIDF Research thus upgraded its stance on Petronas Chemicals to ‘buy’ from ‘neutral’.