Review

• Petronas Chemicals Group Bhd’s (PCHEM) 9MFY23 results came in below expectations, accounting for 60% and 55% of ours and consensus’ full-year forecasts respectively. The negative variance was largely due to lower-thanexpected product selling prices and higher-than-expected tax expenses.

• 9MFY23 revenue grew 6.0% YoY due to higher sales volume (+26% YoY) from the inclusion of contribution from Perstorp acquired in Oct 2022 and Pengerang Integrated Complex (PIC) despite 30% drop in ASP. Plant utilisation (PU) was comparable at 85% against the corresponding period last year. 9MFY23 EBITDA plunged on the back of lower product spread and higher utilities costs.

• Olefin and Derivatives (O&D): 3QFY23 revenue dropped 3.8% QoQ on the back of lower sales volume (-3.9% QoQ) and ASP. PU was low at 78.6% (2QFY23: 98.4%) affected by planned shutdowns at PC Glycols and PC Derivatives, as well as unplanned shutdown at PC Olefins from utilities supply disruption. EBITDA plunged 30.8% QoQ driven by higher maintenance costs and lower product spreads.

• Fertilisers and Methanol (F&M): 3QFY23 revenue decreased 3.5% QoQ due to lower sales volume (-6.4% QoQ) from inventory restocking. PU was 3.4%-pts higher QoQ at 76.4% despite planned turnaround at PC Ammonia, shutdown at ABF, as well as unplanned shutdown for 30 days at PC Methanol 2 in the current quarter. Recall that PC Fertiliser Sabah and PC Methanol 2 experienced unplanned downtime from feedstock supply disruption back in 2QFY23. Correspondingly, EBITDA surged 30.7% QoQ as a result of higher product spreads and lower fuel costs.

• Specialties: 3QFY23 revenue dipped 7.8% QoQ largely due to lower ASP. However, EBITDA improved 26.3% QoQ on the back of seasonally lower manpower costs (due to summer holidays) and lower maintenance costs.

Key Takeaways

From Conference Call

• PCHEM’s effective tax rate (ETR) in 3QFY23 was 25.1%, much higher than 6.0% in FY22 or 8.8% in 2QFY23. The higher tax rate was due to nondeductibles expenses, mainly accrual payment to BRB group. Management guided that ETR is expected to hover around 10%-15% in coming quarters.

• PIC experienced LBITDA of c.RM35mn in 3QFY23, halved from a quarter ago mainly due to foreign exchange gains and ramping up of volume at the plant. PIC still has 5 more performance test runs (PTR), which are expected to be completed by 1QFY24. The decision to commence commercialisation will depend on the outcome of the PTR. We expect PIC to register narrower losses in the coming quarter from ramping up of production volume, with commercialisation likely around mid-FY24. However, loss from PIC could expand in FY24 as depreciation expense kicks in from 1QFY24 onwards.

• Separately, PCHEM has extended the existing gas sales agreement with Petroliam Nasional Berhad for the supply of ethane and propane as feedstock for plant operations at PETRONAS Chemicals Olefins Sdn Bhd for 1 year from 1 Jan to 31 Dec 2024 on the same terms and conditions.

Impact

• We lower our FY23/FY24/FY25 earnings forecasts by 16.5%/5.1%/2.5% respectively after lowering our ASP assumptions for O&D products by 3%- 5% and increasing our effective tax rate forecasts from 8%/8%/8% to 13%/10%/10%.

Valuation

• Maintain Hold with a lower TP of RM7.47/share (previous: RM7.55/share) pegged to 9x CY24 EV/EBITDA.

Source: TA Research - 29 Nov 2023