Analysts see favourable third quarter for Malaysia’s petrochemicals industry

KUCHI NG: Mal ays i a ’ s petrochemicals industry is expected to record a decent third quarter ( 3Q) due to the current favourable demand- supply dynamics and undemanding valuations, analysts observed.

In a report, the research arm of Maybank Investment Bank Bhd ( Maybank IB Research) believed that both Petronas Chemicals Group Bhd ( PChem) and Lotte Chemical Titan Holding Bhd’s ( LCT) 3Q17 results would be inline with market’s expectations with an upward bias.

“Key point is both managed to turnaround their facilities within stipulated plan and average selling prices (ASP) have crept up higher due to the global production disruption.

“We are positive on the sector on favourable demand- supply dynamics and undemanding valuations,” the research house said.

It explained that PChem had a major turnaround for its Ammonia and Kertih plants in 3Q17 while LCT’s Naphtha Cracker #1 ( NC1) underwent a turnaround in 3Q17 which took 33 days. LCT management stated that it went live on August 11 and it has ramped up smoothly with no issues.

“It is important to note that these maintenance shutdowns by PChem and LCT are well publicised to the market,” it pointed out.

Maybank IB Research also highlighted that petrochemical prices had a positive boost from the Tropical Storm Harvey that inflicted the US Gulf area in early September 2017.

“Many of the US petrochemical facilities were damaged and are not yet fully operational till today.

“T his had di s r up t e d petrochemical supply and lifted prices higher. In addition, global PMI has been in strong growth territory in 2017 which underpins a sturdy demand for petrochemical products,” it added.

Overall, the research house pegged a positive view on Malaysia’s petrochemical sector on strong industry demand and healthy product margin spreads

“Both PChem and LCT are trading at undemanding valuations and both have solid net cash balance sheet,” it said, noting that it favoured LCT as it is the cheapest Asean based petrochemical group and offers the best upside to our target price.