Petronas Chemicals Group Bhd (Nov 23, RM5.93)
Maintain buy at RM5.94 with target price of RM8.15: Profit after tax and minority interest (Patami) for 9MFY11 of RM2,818 million (+40.3% year-on-year [y-o-y]) was 74% of our full year forecast (within expectation) and 78% of consensus (ahead). These are impressive results driven by high utilisation rates, strong product margins and relatively stable input cost. PetChem will continue to leverage the current high chemical prices and should obtain strong results in 4QFY11. We maintain our “buy” call with a target target price of RM8.15 based on 13.5 times 2012 price-earnings ratio in line with peers’ historical mean PER.
Patami of RM1,149 million for 3QFY11 (+128.9% y-o-y, +31.5% quarter-on-quarter) was higher than our expectation of RM1,018 million. The main driver was an average utilisation rate of 84% (against our 83% assumption) which helped boost volumes by 3% y-o-y. Product prices were also significantly higher by an average of 49% y-o-y (against our 54% assumption).
Earnings before interest tax, depreciation and amortisation (Ebitda) margin for 3QFY11 was at 40.9%, a 15-percentage point (ppt) improvement y-o-y. Equally impressive, 3QFY11’s Patami margin of 24.8% was 8.9 ppt higher y-o-y. To add further credibility to these already strong numbers, the tax rate in 3QFY11 was at a full rate of 25.2% against 18.8% for the same period last year. PetChem has utilised all of its tax benefits. As a sweetener, an interim single-tier dividend per share of eight sen was announced, the stock will go ex this Dec 9.
There has been a slew of downgrades on PetChem recently as many North Asian petrochemical players have been underperforming. Consensus fails to see the distinction between PetChem, which uses gas as its feedstock, and its North Asian counterparts which use naphtha.
Naphtha is significantly more volatile and expensive whereas gas is cheap and stable. If anything, PetChem is benefiting immensely under the current environment as the high naphtha cost supports high product prices in order for producers to break even.
We are confident PetChem will be able to meet our 2011 forecast. Utilisation should stay above 80% in 4QFY11 as there are minimal scheduled maintenance shutdowns during the period and product prices continue to stay strong. We will update on the impact of the ethylene plant closure in Kerteh post an analyst call yesterday. — Maybank IB Research, Nov 23
This article appeared in The Edge Financial Daily, November 24, 2011.
Maintain buy at RM5.94 with target price of RM8.15: Profit after tax and minority interest (Patami) for 9MFY11 of RM2,818 million (+40.3% year-on-year [y-o-y]) was 74% of our full year forecast (within expectation) and 78% of consensus (ahead). These are impressive results driven by high utilisation rates, strong product margins and relatively stable input cost. PetChem will continue to leverage the current high chemical prices and should obtain strong results in 4QFY11. We maintain our “buy” call with a target target price of RM8.15 based on 13.5 times 2012 price-earnings ratio in line with peers’ historical mean PER.
Patami of RM1,149 million for 3QFY11 (+128.9% y-o-y, +31.5% quarter-on-quarter) was higher than our expectation of RM1,018 million. The main driver was an average utilisation rate of 84% (against our 83% assumption) which helped boost volumes by 3% y-o-y. Product prices were also significantly higher by an average of 49% y-o-y (against our 54% assumption).
Earnings before interest tax, depreciation and amortisation (Ebitda) margin for 3QFY11 was at 40.9%, a 15-percentage point (ppt) improvement y-o-y. Equally impressive, 3QFY11’s Patami margin of 24.8% was 8.9 ppt higher y-o-y. To add further credibility to these already strong numbers, the tax rate in 3QFY11 was at a full rate of 25.2% against 18.8% for the same period last year. PetChem has utilised all of its tax benefits. As a sweetener, an interim single-tier dividend per share of eight sen was announced, the stock will go ex this Dec 9.
There has been a slew of downgrades on PetChem recently as many North Asian petrochemical players have been underperforming. Consensus fails to see the distinction between PetChem, which uses gas as its feedstock, and its North Asian counterparts which use naphtha.
Naphtha is significantly more volatile and expensive whereas gas is cheap and stable. If anything, PetChem is benefiting immensely under the current environment as the high naphtha cost supports high product prices in order for producers to break even.
We are confident PetChem will be able to meet our 2011 forecast. Utilisation should stay above 80% in 4QFY11 as there are minimal scheduled maintenance shutdowns during the period and product prices continue to stay strong. We will update on the impact of the ethylene plant closure in Kerteh post an analyst call yesterday. — Maybank IB Research, Nov 23
This article appeared in The Edge Financial Daily, November 24, 2011.
