PCHEM–Fundamental Analysis (5 Nov 2015)

Fundamental Analysis as of FY14 – http://www.slideshare.net/lcchong76/pchem-fundamental-analysis-fy14

Excel – http://1drv.ms/1GMEvLT

Latest Financial – Q3 2015 Financial Report (3 Nov 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4910181

FY15 Q3 Results Highlight:

  • PCHEM’s 3QFY15F earnings surged by 65% QoQ to RM916mil mainly due to higher sales volume and realised favourable exchange rate movement, which offset the impact of lower average product prices.
  • PCHEM’s overall plant utilisation rose to 2QFY15 decreased to 88% from 78% in 2QFY15, in which the group had undertaken a statutory turnaround activity at its Gurun urea facility. Management expects FY15F plant utilisation to remain at 85% and rise to 90% in FY16F as the group is expected to undergo normal turnaround activities.
  • 4 Nov 2015 – National oil company Petroliam Nasional Bhd (Petronas) is injecting three companies that are currently undertaking petrochemical works at its RM60 billion Refinery and Petrochemical Integrated Development (Rapid) project in Johor, into Petronas Chemicals Group Bhd (PetChem) for RM13,000.
  • The three companies — PRPC Glycols Sdn Bhd, PRPC Polymers Sdn Bhd and PRPC Elastomers Sdn Bhd — are currently working on petrochemical projects at Rapid with a future total investment cost of about US$3.9 billion, with a combined total capacity of approximately 2.7 million tonnes per annum (mtpa)

Valuation:

  • Absolute EY%:
    • Trailing:
      • FY14 (EPS: 0.341) – 6.238 (Uncertainty Risk: HIGH)
      • R4Q (EPS: 0.322) – 5.899 (Uncertainty Risk: VERY HIGH)
    • Forward:
      • FY15 (EPS: 0.353 ± 5%) – FY15 (EPS: 0.355 ± 5%) – From 6.176 to 6.826 (Uncertainty Risk: HIGH)
      • FY16 (EPS: 0.401 ± 5%) – FY16 (EPS: 0.405 ± 5%) – From 7.041 to 7.782 (Uncertainty Risk: MEDIUM to HIGH)
    • EPS applied to reach the current stock price (6.56): 0.358
  • Dividend Drill Return Model (Beta Version)
    • Total Projected Return: 10.29%
    • Hurdle Rate: 9.49%
    • To meet the hurdle rate, purchase below: 8.681
    • Uncertainty Risk: MEDIUM
  • In my opinion, fair value of PETGAS range from 7.0 to 7.7. Uncertainty risk of fair value is from MEDIUM to HIGH.

Going Forward:

In the next 1-2 years, I think PCHEM earnings may be inconsistent because ASPs are weakening in tandem with the drop in global crude oil prices as demand remains volatile due to the uncertainties surrounding the broader economy.

Valuations may not very compelling, but not bad. PCHEM still appeals to funds seeking earnings stability

I will continue to accumulate this counter for my family member.

At the time of writing, my family member owned shares of PCHEM.

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