Malaysia's PETRONAS Chemicals 2017 profit growth seen at 35-41%

15 November 2017 09:16 Source:ICIS News

SINGAPORE (ICIS)--PETRONAS Chemicals Group’s (PCG) full-year net profit is expected to post a strong double-digit growth to a record high, largely boosted by earnings from its fertilizer business following the start-up of the Malaysian producer’s Sabah ammonia urea (SAMUR) project in May.

Three Malaysian brokerage houses projected PCG’s net profit growth to range between 35% and 41% from ringgit (M$) 2.93bn ($699m) last year, based on their latest research notes.

For the first nine months of this year, PCG’s net profit rose by 62.5% year on year to M$3.17bn from M$1.95bn in the same period of last year, with sales up by 27.8% at M$12.7bn.

PCG is the listed petrochemical arm of Malaysia's state-owned energy firm PETRONAS.

While the company's overall plant utilisation for the first nine months of this year slipped to 91% from 96% in the same period of 2016, favourable petrochemical prices and a stronger US dollar, which strengthened by 6% year on year against the ringgit, helped boost revenue, said Affin Hwang Research.

PCG currently has two ongoing joint venture projects which management expects to start up in phases from 2017 and 2018, Nomura said.

The aroma project is expected to come on stream by the end of this year while a new 50,000 tonnes/year highly reactive polyisobutene (HR-PIB) project at Gebeng should commence in the in the beginning of next year.

In the fourth quarter, PCG’s earnings would be supported by higher product prices and the recent recovery in crude oil values, according to analysts.

Average selling prices across all PCG’s products should increase in the last three months of 2017, in the advent of the winter season, said Malaysia-based Kenanga Research.

Among its products, urea, methanol and olefin would see spikes that should help boost the company’s overall earnings in October to December 2017, according to Japanese firm Nomura Global Markets Research.

“Beyond 4Q17, though, management guided that while methanol strength will likely persist, urea could see some correction," it said.

In the third quarter, PCG posted a minimal increase in net profit to Malaysian ringgit (M$) 913m despite a 12.6% increase in revenue.

“The better Q3 revenue did not trickle down to net profit, which unfortunately only saw a 3% improvement. This was due to higher costs incurred for the turnaround activities during the quarter,” Malaysia-based Affin Hwang Research.

PCG noted in its third-quarter earnings report that olefins and derivatives market would be stable in the near term, drawing support from higher naphtha prices, but partially negated by seasonal low demand in China.

In Ringgit (M$) million Q3 2017 Q3 2016 % Change Jan-Sept 2017 Jan-Sept 2016 % Change
Net Profit 913 891 2.5 3,172 1,945 63.1
Revenue 4,013 3,564 12.6 12,667 9,913 27.8
EBITDA 1,431 1,457 -1.8 4,891 3,807 28.5

But the company expects its fertilizers and methanol segment to continue to be strong amid solid demand from the agriculture sector and lower supply from the Middle East.

The segment had a 52% year-on-year surge in earnings before interest, tax, depreciation and amortisation (EBITDA) to M$600m in the September quarter, which made up 40% of PCG’s overall EBITDA, backed by increases in methanol and ammonia prices.

Focus article by Nurluqman Suratman

($1 = M$4.19)

By Nurluqman Suratman