Excel – http://1drv.ms/1w3Rflk
Notes – http://tinyurl.com/qg7zdpt
- 10-Y DCF:
- Good Scenario: 7.34 (Fair value uncertainty: MEDIUM)
- Base Scenario: 6.24 (Fair value uncertainty: MEDIUM)
- Bad Scenario: 5.35 (Fair value uncertainty: HIGH)
- Ugly Scenario: 4.61 (Fair value uncertainty: VERY HIGH)
- If growth of FCFF in the next 10 years is 1%, PCHEM still worth 5.19.
- Absolute EY%:
- FY13 (EPS: 0.393) – Fair value 7.69 (Fair Value Uncertainty: LOW)
- R4Q (EPS: 0.302) – Fair value 5.9 (Fair Value Uncertainty: MEDIUM)
- FY15 (EPS: 0.424) – Fair value 8.28 (Fair Value Uncertainty: LOW)
- FY16 (EPS: 0.471) – Fair value 9.2 (Fair Value Uncertainty: LOW)
- EPS applied to reach the current stock price (5.19): 0.266
- 10-Y DCF:
- Valuation of PCHEM is quite attractive now.
- I do not expect that earnings in FY14 will match that of FY13 despite the end of major turnaround activities. There will be other smaller planned maintenance exercise which will not severely impact overall group earnings. However, I think that this is a short term problem. In long term, growth drivers of PCHEM are still intact.
- Slower demand from China will result in compressed olefin spreads and weaker fertiliser prices. This is exacerbated by a more competitive export tax structure for fertilisers in China.
- Meanwhile, capacity expansion will only materialise in the longer term (SAMUR & Aroma Plant: FY16, & RAPID: FY19). Whereas PChem’s cash hoard of (3Q14: RM10.0bn) will likely be used to finance RAPID’s capex (project cost: USD16bn) and thus offers limited upside to dividends.
Latest Financial – Q3 2014 Financial Report (6 Nov 2014) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1786901
At the time of writing, my family member owned shares of PCHEM.