Results Review

(Member of Alliance Bank group)

Petronas Chemicals

PP7766/03/2013 (032116)

Chemicals

9 May 2014

Bloomberg Ticker: PCHEM MK | Bursa Code: 5183

1Q hit by methane gas limitation

Analyst
Malaysian Research Team
allianceresearch@alliancefg.com
+603 2604 3333

12-month upside potential

Target price
Current price (as at 8 May)
Capital upside (%)
Net dividends (%)
Total return (%)

5.80
6.79
-14.6
3.3
-11.3

Key stock information

Syariah-compliant?
Market Cap (RM m)
Shares outstanding (m)
Free float (%)
52-week high / low (RM)
3-mth avg volume ('000)
3-mth avg turnover (RM m)

Yes
54,320.0
8,000.0
12.5
7.15 / 6.31
3,212.3
21.7

Share price performance

1M
Absolute (%)
0.6
Relative (%)
0.0

Fully Valued

3M
0.6
-1.9

6M
-0.6
-3.7

1Q14 net profit is c.18% of house and consensus full year forecasts
Weaker earnings due to methane gas limitation, urea plant maintenance, and softer
product prices
Our forecasts are intact as urea plant is back online and methane gas issue has been
resolved; overall group plant utilisation will normalise in 2H14
Fully Valued at current level, TP RM5.80

Highlights

Methane gas supply limitation. Petronas Chemicals (PChem) reported 1Q13 net profit of
RM749m (-32% y-o-y, +37% q-o-q). The weak y-o-y results were due to lower sales volumes
and selling prices. But earnings recovered q-o-q as 4Q13 saw heavy maintenance activities
and utilities supply disruption at the Olefins & Derivatives (O&D) segment.
The O&D segment recorded mildly lower plant utilization of 97% in 1Q14 compared to 99%
in 1Q13 due to minor feedstock supply disruption. Softer prices for glycols, ethylene
derivatives and aromatics led to lower margins, with segment EBITDA declining 26% y-o-y to
RM879m.
Fertiliser & Methanol (F&M) segment plant utilisation fell to 68% from 88% in 1Q13 due to
methane gas supply limitation and urea plant maintenance in Bintulu. As a result, segment
EBITDA fell 33% y-o-y to RM400m.

Our view

Share price chart

Forecast intact despite weak 1Q. Plant utilisation at the F&M segment will recover from 2Q
onwards as the methane gas issue had been resolved in 1Q, and the urea plant maintenance
has been completed. In the O&D segment, we expect a dip in utilisation to 80-85% in 2Q
because of scheduled cracker maintenance. However, plant utilisation and earnings will
normalise in 2H14 and could exceed 90% barring unforeseen circumstances.

Recommendation

Fully Valued. PCHEM lacks a major earnings catalyst in the interim as the SAMUR plant
completion is delayed to 1Q16. And on expectations of flat near term growth, we maintain
our Fully Valued call. Our target price of RM5.80 is pegged to 13.7x FY14 EPS, in line with
regional peers average.

All required disclosure and analyst certification appear on the last two pages of this report. Additional information is available upon
request. Redistribution or reproduction is prohibited without written permission

Results Review | Petronas Chemicals | 9 May 2014

SNAPSHOT OF FINANCIAL RESULTS

Figure 1 : Results summary
FY Dec (RM m)

1Q2014

1Q2013

4Q2013

yoy chg

qoq chg

3,806.00
1,254.00
1,047.00
1,247.00
749

4,455.00
1,784.00
1,590.00
1,780.00
1,105.00

3,349.00
716
524
712
547.3

-14.6
-29.7
-34.2
-29.9
-32.2

13.6
75.1
99.8
75.1
36.9

32.9
27.5
19.7

40
35.7
24.8

21.4
15.6
16.3

FYE Dec (RM m)

2012A

2013A

2014F

2015F

Turnover
Operating Profit
EBITDA
Net Pft (Pre Ex.)
EPS (sen)
EPS Pre Ex. (sen)
EPS Gth (%)
EPS Gth Pre Ex (%)
Net DPS (sen)
BV Per Share (sen)
PE (X)
PE Pre Ex. (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)

15,202
4,334
5,629
3,185
40.5
39.8
-9
-11
20.0
271.7
16.6
17
8.1
3.0
2.5
CASH
15.4

16,289
4,757
6,312
3,295
42.4
41.2
5
3
21.6
292.5
15.9
16.4
7.2
3.2
2.3
CASH
15

16,817
4,907
6,568
3,479
43.5
43.5
3
6
22.1
313.9
15.5
15.5
6.8
3.3
2.2
CASH
14.3

17,043
4,966
6,685
3,495
43.7
43.7
0
0
22.2
335.4
15.5
15.5
6.4
3.3
2
CASH
13.5

P&L Items
Turnover
Gross Profit
Opg Profit
EBITDA
Net Profit
Other Data
Gross Margin (%)
Opg Margin (%)
Net Margin (%)
Source: Alliance Research

Figure 2 : Financial summary

Source: Alliance Research, Bloomberg

Results Review | Petronas Chemicals | 9 May 2014

DISCLOSURE
Stock rating definitions
STRONG BUY
BUY
HOLD
FULLY VALUED
SELL

> 20% total return over the next 3 months, with identifiable share price catalysts within this time frame
> 15% total return over the next 12 months for small caps, >10% for large caps
-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps
negative total return > -10% over the next 12 months
negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame

Sector rating definitions

OVERWEIGHT
- Industry expected to outperform the market over the next 12 months
NEUTRAL
- Industry expected to perform in-line with the market over the next 12 months
UNDERWEIGHT - Industry expected to underperform the market over the next 12 months

Commonly used abbreviations

Adex = advertising expenditure
bn = billion
BV = book value
CF = cash flow
CAGR = compounded annual growth rate
Capex = capital expenditure
CY = calendar year
Div yld = dividend yield
DCF = discounted cash flow
DDM = dividend discount model
DPS = dividend per share
EBIT = earnings before interest & tax
EBITDA = EBIT before depreciation and amortisation

EPS = earnings per share

EV = enterprise value
FCF = free cash flow
FV = fair value
FY = financial year
m = million
M-o-m = month-on-month
NAV = net assets value
NM = not meaningful
NTA = net tangible assets
NR = not rated
p.a. = per annum
PAT = profit after tax

PBT = profit before tax

P/B = price / book ratio
P/E = price / earnings ratio
PEG = P/E ratio to growth ratio
q-o-q = quarter-on-quarter
RM = Ringgit
ROA = return on assets
ROE = return on equity
TP = target price
trn = trillion
WACC = weighted average cost of capital
y-o-y = year-on-year
YTD = year-to-date

Results Review | Petronas Chemicals | 9 May 2014

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Bernard Ching
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