PetChem faces more challenges ahead

by **Cals** Thu 14 Aug 2014, 01:21

Business & Markets 2014

Written by AllianceDBS Research

Wednesday, 13 August 2014 09:56

Petronas Chemicals Group Bhd
(Aug 12, RM6.60)
Maintain fully valued with target price of RM5.80: For the second quarter ended June 30 of financial year 2014 (2QFY14), PetChem reported a net profit of RM555 million (-42% year-on-year [y-o-y], -26% quarter-on-quarter [q-o-q]). Its net profit for the first half (1HFY14) was below expectations at 40% of our and 36% of consensus’ full-year estimates.

2QFY14 results were disappointed due to lower selling prices (for aromatics, urea, ammonia and methanol) and sales volumes of PetChem’s olefins and derivatives (O&D) division. The lower sales volume was due to planned maintenance at PetChem’s smaller ethane cracker, which resulted in lower sales of ethane derivative products.

While the O&D division is expected to bounce back by 3QFY14 (with the completion of maintenance works), the fertiliser and methanol (F&M) division may, instead, be a drag on earnings. PetChem reported another gas supply disruption at its Methanol 2 plant which started operations in July. There will also be planned maintenance activities at the Methanol 1 plant in 3QFY14, which will lower plant utilisation.

We cut our FY14F and FY15F earnings by 5%-8% to reflect: (i) lower utilisation and gas supply issues in the F&Mdivision and (ii) lower prices especially for aromatics and F&M products. — AllianceDBS Research, Aug 12

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This article first appeared in The Edge Financial Daily, on August 13, 2014.[/size]