Malaysia's PCG on track for better H2 on higher output

12 May 2014 05:28 Source:ICIS News

Focus story by Nurluqman SuratmanPetronas twin towers in Kuala Lumpur, Malaysia

SINGAPORE (ICIS)--Malaysia’s PETRONAS Chemicals Group (PCG) is on track for improved results in the second half of this year, driven by higher output volumes and better run rates at its production units, analysts said.

The company on 8 May reported that its first-quarter net profit fell by 32.2% year on year to ringgit (M$) 749m ($232m), amid poor earnings from its aromatics products, chiefly paraxylene (PX), poorer monoethylene glycol (MEG) margins and turnarounds at its fertiliser and methanol business, Suwat Sinsadok, an analyst at Malaysia-based CIMB Investment Bank, said.

PCG’s revenue fell by 14.6% year on year to M$3.81bn in the first quarter of this year, while earnings before interest, tax, depreciation and amortisation (EBITDA) was down by 29.9% at M$1.25bn.

The company posted an EBITDA margin of 80% in the first quarter of this year, down from the 92.8% in the same period in 2013 but higher than the 66.0% in the fourth quarter of last year.

On a month-on-month basis,  the company’s net profit surged by 66.4% while its revenue was up by 13.6% in January-March 2014.

The company’s overall plant utilisation level rose from 66% in the fourth quarter of last year to 80% in the first quarter of this year, according to Malaysia-based AmeSecurities.

This improvement in run rates mostly stemmed from the olefin & polymer division, which rose to 97% in the first quarter from 67% in fourth quarter of last year, it said.

The fertiliser & methanol division’s utilisation improvement was more muted, rising by 2 percentage points to 67% as the Labuan methanol plant 2 only restarted in the middle of the first quarter after undergoing extensive maintenance work, AmeSecurities said.

Looking ahead, PCG’s heavy maintenance activities, which started in the third quarter of 2013, is expected to be completed by the second quarter of this year, and this will see the company’s earnings recover from the second half of this year onwards, according to Malaysia-based Kenanga Investors.

"With that, we would have completed our cycle of statutory turnaround activities for the main facilities in both business segments," PCG’s president/CEO Sazali Hamzah said in a statement on 8 May.

"We expect to achieve improved plant utilisation, which will translate into better financial performance from this year onwards," he added.

However, the company’s earnings in the second quarter of this year are expected to be weighed by turnarounds at its fertiliser and methanol business, analysts said.

PCG’s outlook in the second half of this year is promising, with only one planned maintenance turnaround at its methanol plant in the third quarter of this year, CIMB’s Sinsadok said.

“We expect PCG to increase its overall utilisation rate from 80% in the first quarter to 85% in the second quarter and 95% in the second half of 2014,” he added.

The company will now focus on three key expansion projects, which includes the $20bn Refinery and Petrochemical Integrated Development (RAPID) project in Pengerang which is now under the final stage of investment assessment, Sinsadok said.

PCG is expected to announce the final budget for this project by the end of this year, he said.

The second project, named Lemongrass, involves M$1.5bn for an integrated aroma ingredients complex in Gebang, Kuantan, and it is on track for commencement by 2016, Sinsadok said.

This new project involves the development of a new complex that will be integrated with BASF-PETRONAS Chemicals’ existing facilities in Gebeng, which produces acrylic monomers, oxo products and butanediol (BDO), the company said.

The investment in Gebeng also includes the development of a new plant to produce citronellol and l-menthol. It will be developed in phases with the first plant expected to come on stream in 2016, it added.

Finally, the SAMOR project has now reached a completion stage of 50% and is on track  to commence operations by the first quarter of 2016 after a six-month delay due to a fire incident, according to CIMB’s Sinsadok.

($1 = M$3.23)

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By Nurluqman Suratman