Softer demand, prices drag on Petronas Chemicals’ 3Q
KUALA LUMPUR: Petronas Chemicals Group Bhd’s (Petronas Chemicals) net profit for the third quarter ended Sept 30, 2020 (3QFY20) fell to RM471 million from RM553 million registered in the same quarter last year.
Revenue slipped six per cent to RM3.46 billion from RM3.67 billion previously, largely due to lower product prices.
In a filing with Bursa Malaysia, Petronas Chemicals said the overall average prices for the group decreased from the previous corresponding quarter, which is in tandem with declining crude oil price arising from the OPEC+ fallout and so er demand following the Covid-19 pandemic.
However, the group recorded higher plant utilisation of 90 per cent compared with 81 per cent in the corresponding quarter last year, mainly due to lower level of statutory turnaround activities, and correspondingly, production and sales volumes increased.
Kenanga Investment Bank Bhd (Kenanga Research) saw that Petronas Chemicals’ 3QFY20 core net profit came in at RM560 million, representing a 3.5 times jump quarter on quarter, mainly due to the recovery in product prices from the bo om witnessed in the previous quarter.
“The higher product prices managed to offset the lower production volume as a landslide incident at supplier’s facilities in Sabah resulted in lower plant utilisation during the quarter,” it said in a note yesterday.
“The plants have already resumed full operations during the quarter. Year on year (y-o-y), 3QFY20 also managed a jump of 19 per cent in core earnings. This was mainly due to the higher plant utilisation from lesser turnaround activities, offse ing poorer product prices.
“Cumulatively, its first nine months of FY20 saw a decline in core earnings by 53 per cent y-oy. This was largely a ributable to poorer product prices, in tandem with the declining crude oil prices amidst the global Covid-19 pandemic.
In a statement, managing director/chief executive officer Datuk Sazali Hamzah said the Pengerang Integrated Complex, scheduled for start-up in 1Q21, will increase the group’s petrochemical production capacity by about 15 per cent to 14.6 million tonnes per annum.
He said despite the challenging business environment, the group would continue to pursue its investments in downstream value chains and speciality chemicals such as butadiene derivatives, ethoxylates, polyether polyols and silicone derivatives.
“We expect to continue investing in innovative and highvalue speciality chemicals to complement the expansion of our core business. This future-proofing strategy will further strengthen PChem’s resilience,” he added.
Nevertheless, Kenanga Research was not all positive on the commencement of the plant as it would be loss-making immediately upon commercialisation.
“Upon commercialisation, the group will have to start recognising fixed costs of depreciation and finance expenses amounting to possibly up to RM600 million per year,” it warned. “We believe the plant may take more than 12 months to see positive contributions.
“Additionally, the Pengerang plant would also expose the group to naphtha-based products, potentially increasing fluctuations in product margins, and also heightening the group’s earnings correlation to crude oil prices. Meanwhile, in the more immediate-term, petrochemical prices have been steadier of late, and thus, we may expect to see another stable quarter going into 4QFY20.”