AmResearch maintains hold on Petronas Chemicals, raises FV to RM6.20

PETALING JAYA: AmResearch has maintained its "hold" call on Petronas Chemicals Group Bhd (PCG) with a higher fair value of RM6.20 from RM5.30 previously, following the group's announcement of building a new plant with Germany's BASF.
The production plant for highly reactive polyisobutene (HR-PIB) will be built at the site of PCG and BASF's existing joint venture, BASF Petronas Chemicals Sdn Bhd in Kuantan, Pahang.
The plant will have a total annual capacity of 50,000 tonnes of HR-PIB and is expected to start production in 4QFY17.
"We understand that the investment is in line with the group's strategy to diversify into specialty chemicals and solutions. BASF currently also has production facilities for HR-PIB in Germany, Belgium and China," AmResearch said in its research note yesterday.
"We do not expect the new plant to have a significant contribution to the group given that the annual capacity is small compared with the group's annual production capacity of more than 10 million tonnes," it said.
It said that PCG's plant utilisation rate had improved to 90% in 1QFY15, following the completion of major turnaround and maintenance shutdowns in 2013 and 2014.
"However, management expects the plant utilisation to normalise to 80% to 85%, as there will be planned turnaround activities at two of its plants beginning 2QFY15," it added.
AmResearch said the outlook for the olefins and derivatives market is expected to remain uncertain in the near term given the uncertainty in crude oil and naphta prices while the fertiliser and methanol market will also remain challenging due to higher supplies of fertilisers anticipated from China following changes in their export tax structure.
"The Samur (Sabah Ammonia Urea) plant, which will increase production capacity from 1.4mmtpa to 2.6mmtpa, is on track for completion by 1QFY16.
"Additionally, PCG will incur borrowings going forward to fund its future projects, including Rapid (Refinery and Petrochemicals Integrated Development), with a maximum net debt/EBITDA level of two times," it said.