FocusMalaysia’s PCG to see better earnings in 2012 - analysts

29 May 2012 12:53  [Source: ICIS news]

By Nurluqman Suratman

SINGAPORE (ICIS)--Malaysia’s Petronas Chemicals Group (PCG) is expected to see improved year-on-year results for its full-year 2012 earnings on the back of rising plant utilisation rates and higher margins, analysts said on Tuesday.

However, an expected slowdown in overseas demand from the west may weigh on the company’s product prices for the remainder of this year, they said.

The chemicals maker, the flagship petrochemicals arm of state-owned oil and gas firm PETRONAS, on 28 May reported a 3.3% year-on-year rise in its net profit to Malaysia ringgit (M$) 1.02bn in the first quarter of this year.

“Higher fertilizer/methanol prices and plant utilisation rates were largely offset by lower share of associate contributions and higher effective tax rate,” said Alex Goh of Malaysia’s AmResearch.

The company’s olefins and polymers accounted for 72% of PCG’s net profit in the first quarter of this year, according to Goh.

PCG’s revenues rose slightly by 0.3% year on year to M$4.39bn in the first quarter, driven by a 23% increase in overall sales volume which moderated the impact of lower average product prices and exchange rate movements, the company said in a statement on 28 May.

“PCG remains an attractive petrochemical play which is showing operational improvement from rising utilisation and better margins stemming from cheap gas feedstock,” said Terence Wong, an analyst with Malaysian bank CIMB.

PCG said that both of its core business segments – olefins and derivatives as well as fertilizer and methanol - saw higher plant utilisation rates during the January-March period of this year.

“Higher plant utilisation for the fertilizer and methanol segment follows improving methane gas supply to the group’s methanol facility,” it said without elaborating further.

 The chemical maker’s first-quarter earnings were also driven by stronger margins for both olefins and fertilizers, Wong said, adding that the margin growth for fertilizers was the result of higher utilisation rates arising from strong demand.

“Subsequent quarters should be stronger because of an improved plant performance and expected olefin industry margin recovery,” he added.

PCG’s earnings before interest, tax, depreciation and amortisation (EBITDA) margin rose from 34.6% in the first quarter of 2011 and 35.1% in the fourth quarter to 36.9% in the January-March period of 2012, due to the strong product prices and higher utilisation rates, according to Wong.

For the full-year 2012, CIMB expects a 35.5% year-on-year increase in PCG’s net profit to M$4.81bn while revenues are forecast to rise by 24.7% to M20.2bn.

PCG’s operating EBITDA is expected to rise by 19.7% year on year to M$6.9bn in the full year of 2012, according to CIMB estimates.

Malaysian banking firm Maybank, meanwhile, expects a 23.4% year-on-year rise in PCG’s net profit to M$4.32bn in the full-year period, with sales up by 8.02% at M$17.5bn.

Maybank said that PCG’s average utilisation rate in 2012 should be above 80%, compared with 79.8% in 2011, as “feedstock reliability has improved as PCG has resolved past gremlins [power plant outage, inadequate process water] that robbed it of its high utilisation rate”.

“There are some planned maintenance shutdowns in upcoming quarters but we do not foresee material issues,” it added.

PCG’s full-year 2012 earnings could be capped by the falling prices of it polymer products, with polyethylene (PE) prices down by 20% since 1 April this year and polypropylene (PP) prices falling by 25% in the same period, AmResearch’s Goh said.

“There are concerns regarding its [PCG] product prices which are subject to global economic conditions,” said Malaysia’s ECM Libra Capital in an investors note.

“The olefins prices has tapered off from its high of $1,500 (12 Apr 2012) to $1,200 due to the drop in oil prices and suspected lower demand from western countries, as economic activities started to slow down,” it said.

“We have taken a view that prices should level for the rest of the year as seasonal restocking activities commence in the second half of the year and China’s demand is expected to remain strong,” the firm added.

($1 = M$3.15)

By: Nurluqman Suratman

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