Petrochemical Players’ Earnings Remain Under Pressure
During the quarter, the earnings of Petrochemical players such as Petronas Chemicals (PChem) and Lotte Chemical Titan remained under pressure amidst excess supply leading to weaker utilisation rate (UR) and product spread margin. Of note, PChem’s earnings came below expectation dragged by losses at Olefin and Derivatives (O&D) segment due to weak UR of 71% amidst unplanned maintenance of facilities and higher maintenance costs. Similarly, Lotte Titan’s UR was also remain weak at 66%. Though this is largely expected, the quarterly sales volume that plunged to weakest level since 2018 at 387k MT marked a concern on its future recovery. On the other hand, Petronas Dagangan’s (PetDag) earnings were also below our expectation but we believe it was due to temporary effect of unfavourable product price movement which will normalise on coming quarters.
Upstream Services Companies Continued to Deliver Earnings Growth
Upstream services companies continued to perform well on the back of rising offshore activities amidst upcycle in upstream spending. Notably, Velesto’s earnings were at the strongest since 2014 which has beaten our and consensus estimate by a wide margin at 155% and 143% respectively. Meanwhile, MMHE has returned back to profitability on higher revenue streams from newer contracts which had offset the impact of loss-making legacy contracts. T7 Global, Dayang and MISC also reported better earnings which is inline with our initial estimate.
Changes Made to Recommendation
Following a strong price rally of O&G counters particularly in upstream services segment, we made a downgrade to T7 Global (from BUY to HOLD) and Dayang (from HOLD to SELL) as we kept our earnings forecast unchanged for these companies. However, we maintain a BUY call on Velesto with higher TP to RM0.34 (from RM0.30) as we upgraded our earnings estimate on higher DCR outlook.
Maintain OVERWEIGHT call on the sector
Maintain OVERWEIGHT call on the Oil and Gas sector as we reaffirm our optimistic von potential upcycle in O&G capex spending on lagging effect from high oil prices to offshore activities. Against this backdrop, MISC (TP: RM10.10), MMHE (TP: RM0.94), Velesto (TP: RM0.34) and Hibiscus (TP: RM3.40) remain as our top pick.
Source: BIMB Securities Research - 7 Mar 2024
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MISCCreated by kltrader | Nov 05, 2024