PCHEM–Fundamental Analysis (14 Mar 2016)

Fundamental Analysis as of FY15 – http://www.slideshare.net/lcchong76/pchem-fundamental-analysis-fy15

Excel – http://1drv.ms/1nI9Vde

Latest Financial – Q4 2015 Financial Report (23 Feb 2016) http://www.bursamalaysia.com/market/listed-companies/company-announcements/5007061

FY15 Q4 Results Highlight:

  • PCHEM’s ASP was down by 10% YoY in USD terms, which is in tandem with the fall in crude oil prices. However, the weaker MYR against the USD in the same period has more than offset this impact.
  • 24 Feb 2016 – 4Q15 net profit declined 23% QoQ to RM704m, as revenue slid 5% over the period, on lower product volume due to lower plant utilisation (PU) of 86% from 88% on the back of slightly higher maintenance activities. This was mainly for Olefins and Derivatives (O&D) facilities with PU falling to 95% from 99% while PU for Fertilisers and Methanol (F&M) was maintained at 79%. The decline in topline was mainly driven by ASP, which continued to slide on falling crude oil and naphtha prices.
  • 24 Feb 2016 – YoY, 4Q15 net income slid 8% from RM762m in 4Q14 as revenue contracted 12% as the PU was lower than 88% registered in 4Q14 as PU for F&M fell from 84% on methane supply limitation while PU for O&D improved slightly from 93%. ASP also weakened as mentioned above despite higher value in MYR term. YTD, FY15 net profit rose slightly by 2% to RM2.78b despite revenue falling 7%. Again, the improvement in bottomline was driven mainly by higher PU of 85% from 80% whereas the decline in topline was mainly attributed to ASP as a result of steep decline in crude oil and naphtha prices.
  • SAMUR urea plant is progressing well and is on track to meet its target to commission by the end of 2Q16. PCHEM is unaffected by the on-goings of its parent and there is no Capex curb or any projects being delayed. If anything, the current route in the oil and gas industry has rendered cost benefits from contractors, engineers and equipment manufacturers.
  • 85% plant utilization – 2015 record operational performance since listing. 2015 has been a relatively trouble free year in terms of factory downtime as there are only a few maintenance shutdowns planned for the year. However, this utilisation rate will exclude the SAMUR fertiliser plant that is scheduled to be commissioned in 2Q16.

PCHEM-PU-FY15

Valuation:

PCHEM-FY15Q4-Football-Field

In my opinion, fair value of PETGAS range from 7.2 to 7.4. Uncertainty risk of fair value is from 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.

PCHEM’s business is defensive, plus its unrivalled production cost and balance sheet strength. It is also now viewed as a growth company, with a series of plant commissioning in the pipeline all the way to 2019. All these new projects will bring it up in the value chain and ensures strong demand with decent margins. (14 Mar 2016)

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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