• Upgrade to BUY (TP: RM6.00). Petronas Chemicals (PChem) 9M24 core PATAMI of RM1.4bn were inline with our estimate at 71% but lagged consensus’ estimate at 59%. Excluding unrealized forex losses of RM1.1bn in 3Q24, core earnings were flattish QoQ at RM447mn. The headline losses in 3Q24 may not recur in 4Q24 as US dollar has regained its strength. We upgrade PChem to a BUY (from a HOLD) as we believe all the negatives have been priced-in. Our TP is unchanged at RM6.00. We think the risk-to-reward is attractive as the stock is trading at 14.5x FY25F P/E which is below long-term average of 17x P/E.

• Key highlights. On QoQ basis, 3Q24 revenue rose 3.3% QoQ to RM8bn due to higher sales volume (3Q24: 2.7mn MT vs 2Q24: 2.4mn MT). However, Pchem still succumbed to its first quarterly losses since its listing with LATAMI of RM789mn mainly due to unrealised forex losses as mentioned above. The result was also affected by larger LBITDA at Pengerang Petroleum Complex (PPC) of RM130mn (2Q24: RM80mn). Nonetheless, the impact was mitigated by higher plant utilisation (PU) rate of 92% (2Q24: 89%).

• Earnings forecast. No changes.

• Outlook. The company has completed all Performance Test Runs (PTR) at PPC and it is targeted to achieve commercial operation date (COD) by Nov 24. However, losses are not expected to widen as the company may get special discount from the refining side upon COD. Positively, the company has also managed to extend its ethane and propane gas feedstock pricing arrangement with Petronas for another 5 years until end of 2029. For FY25, PU is expected to be below 90% as the company has planned turnaround activities at 4 plants (PC Olefin, PC Glycol, PC Derivatives and PC Fertiliser Sabah).

Source: BIMB Securities Research - 21 Nov 2024