STOCK FOCUS OF THE DAY
Petronas Chemicals : Flattish 2HFY17 outlook at bargain valuation Buy
We maintain our BUY recommendation on Petronas Chemicals Group (PChem) with an unchanged fair value of RM8.35/share based on a FY18F EV/EBITDA of 8x, on par with its 3-year average. Our PChem’s FY17F-FY19F earnings, which are already currently 17%-38% above consensus, have been marginally raised as the group’s 1HFY17 net profit of RM2,259mil was slightly ahead our expectations but significantly above street’s. The group declared an interim dividend of 12 sen, which translates to a payout ratio of 43% and was in line with our forecast.
PChem’s 2QFY17 net profit declined by 26% QoQ to RM964mil in tandem with a 16% QoQ revenue contraction from a decrease in overall product prices amid flattish production volume, even with the commencement of the Sabah Ammonia Urea plant (SAMUR) in May this year. Despite the uncertain product price trajectory, we expect PChem’s 2HFY17 earnings outlook to be stable on flattish production volume as the ramp-up of the 1.2mil tonne capacity SAMUR could be largely offset by plant turnaround activities for the existing Optimal Glycols, ammonia and methanol plants which could cause overall utilisation rate to drop below 90%. The stock now trades at an attractive FY18F EV/EBITDA of 7x, below its 3-year average of 8x, while dividend yields are attractive at 4%.
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