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PetChem beats expectations, 4Q to be another good quarter
KUCHING: Petronas Chemicals Group Bhd (PetChem) performed better than expected in the third quarter (3Q) and will likely record another good quarter ahead, on the back of the recovering petrochemical prices and better utilisation of its facilities.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) said in a report, “We expect 4Q to be another good quarter for the group as petrochemical prices have seen a slight recovery while utilisation is expected to maintain strong with no maintenance activities scheduled.
“In the financial year 2016 to 2017 (FY16 to FY17) we expect utilisation to stay strong as the group has shown sustainable improvements in operational efficiency and the Fertiliser & Methanol (F&M) segment will benefit from steady feedstock supply with a new pipeline.
“This leads us to raise estimates by three to 13 per cent for FY15 to FY17 forecast.”
Aside from that, it pointed out that PetChem had recently announced that it would be acquiring the entire equity in three companies from Petronas for the production of 2.7mtpa of glycols, polymers and elastomers for US$110 million.
“Budgeted capital expenditure (capex) is US$3.9 billion to build the three plants but debt or equity funding has not been formalised yet as there are partners who will be involved. More investment decisions are expected as the group hopes to invest in a more specialised chemical plant as well,” it added.
On its 3Q performance, AmResearch Sdn Bhd (AmResearch) said PetChem’s first nine months of FY15 (9MFY15) net profit came in above expectations largely due to favourable foreign exchange (forex) gains and improved plant utilisation.
“PetChem’s 3QFY15F earnings surged by 65 per cent quarter-on-quarter (q-o-q) to RM916 million mainly due to higher sales volume and realised favourable exchange rate movement, which offset the impact of lower average product prices.
“PetChem’s overall plant utilisation rose to 2QFY15 decreased to 88 per cent from 78 per cent in 2QFY15, in which the group had undertaken a statutory turnaround activity at its Gurun urea facility.
“Management expects FY15F plant utilisation to remain at 85 per cent and rise to 90 per cent in FY16F as the group is expected to undergo normal turnaround activities,” it noted.
Nevertheless, it opined the near-term outlook for product prices remains mixed as a likely improvement in olefins and derivatives, supported by supply constraints by Middle-Eastern plant maintenance activities towards the end of the year, could be offset by softer fertiliser and methanol prices, and dampened by weak demand and crude oil prices.
Aside from that, on PetChem’s project at Rapid, AmResearch said this project, which could later involve foreign equity partners, is expected to cost US$3.9 billion with commencement scheduled for 2019.
“Assuming a project internal rate of return (IRR) of 12 per cent, we estimate that the entire stake in this petrochemical project could generate an earnings accretion of RM1.8 billion or 67 per cent of FY15F earnings,” it added.