PetChem’s 2Q exceeds expectations but 2H might be softer
KUCHING: Petronas Chemicals Group Bhd’s ( PetChem) second quarter of the financial year 2018 (2QFY18) and overall first half of 2018 (1H18) earnings were stronger than expected but analysts believe that its 2H could be softer due to the heavy turnaround activities occurring at its plants.
In 2QFY18, PetChem recorded core net profit of RM2,590 million which is significantly above analysts’ expectations while its overall 1H18 net profit came in at RM2.48 billion.
According to the research arm of Affin Hwang Investment Bank Bhd (Affin Hwang), the results were driven by higher overall product average selling prices (ASPs), and an improved plant utilisation at the Fertilisers and Methanol ( F& M) segment as a result of lower maintenance activities at the ammonia and urea plants.
However, it noted that its earnings before interest, tax, depreciation and amortisation ( EBITDA) margin was relatively flat, yearon-year (y- o-y), at 40 per cent, despite the higher revenue due to a lower product spread as the ringgit strengthened.
For the 2H18, however, analysts generally believe that PetChem could see a slow down in its positive earnings growth.
The research arm at AmInvestment Bank Bhd (AmInvestment), said: “However, 2HFY18 earnings could soften as four plants, which include the ethylene cracker, methanol and Asean Bintulu Fertiliser plants, will undergo turnaround activities that management had earlier indicated could mean an overall FY18F rate similar to 91 per cent in FY17.
“This means that 2HFY18 plant utilisation rates could sharply drop to 84 per cent, leading to lower earnings.”
Meanwhile, Kenanga Investment Bank Bhd’s research arm ( Kenanga Research) further explained that with four more statutory turnarounds in 2H18, plant utiliesation is expected to come off to 85 per cent from 98 per cent in 1H18.
“Nonetheless, it is expected to sustain at the 90 per cent level in FY18, which will help to sustain earnings growth as well.
“On the other hand, price outlook remains stable for Olefins and Derivatives on healthy downstream demand and firm feedstock prices while F& M are expected to see firmer prices on tight supply,” it added.
Post-2Q18 results, Kenanga Research raised its FY18/FY19 estimates by five and seven per cent solely on lower effective rate of 15 per cent from 16 per cent against PetChem’s guidance range of 12 to 15 per cent, and lower minority interest.
AmInvestment noted that excluding a 1QFY18 exceptional loss of RM153 million ( forex movement on shareholder loans) from the RM3.8 billion disposal of a 50 per cent equity stake in PRPC Polymers Sdn Bhd to Saudi Aramco, PetChem’s 2QFY18 core net profit rose 13 per cent quarteron- quarter (q- o- q) to RM1,372 million.
“This was mainly from a 9ppt decrease in effective tax rate to eight per cent, due to higher proportion of the group’s income falling under Labuan’s Global Incentive for Trading jurisdiction together with an 81 per cent drop in minority charge with the acquisition of remaining stakes in PC Olefins and PC LDPE on March 29 this year,” it added.