PCHEM–Fundamental Analysis (11 May 2016)

Excel – Download the analysis file

Latest Financial – Q1 2016 Financial Report (9 May 2016)

FY15 Q4 Results Highlight:

  • PCHEM’s 1Q16 earnings declined by -2.1%yoy and -15.9%qoq to RM592m premised on weaker headline revenue.
  • Olefins & derivatives. Although average product prices for this segment were negatively impacted by sharp declines in crude oil and naphtha prices in 1Q16, 3M16 segment revenue improved by +7.6%yoy to RM2.2b while profit increased by +26.6%yoy to RM461m. The commendable increase in revenue and profit were largely due to higher sales volume, strong USD and very strong plant utilisation rate of 97% compared with 95% in 1Q15. Segment profit margin also expanded by +3.1ppts to 20.5%. (MIDF 10 May 2016)
  • Fertilisers & Methanol. Similar to the O&D segment, plant utilisation rate also recorded improvements from 87% in 1Q15 to 89% in 1Q16. Unfortunately, the increases in sales volume and production from increased methane supply were not able to offset the large decline in urea prices. Urea prices in 1Q16 were soft due to ample supply while ammonia and methanol prices were weak due to sluggish demand. Overall 3M16 segment revenue and profit declined by -9.9%yoy and – 33.4%yoy respectively. (MIDF 10 May 2016)
  • Plant utilisation rate for 1Q16. PChem’s group plant utilisation rate in 1Q16 improved to 92% from 90% in 1Q15 due to feedstock supply reliability. This is still above the world-class performance threshold of +85%. (MIDF 10 May 2016)

Valuation:

PCHEM-FY16Q1-Football-Field

In my opinion, fair value of PETGAS range from 6.7 to 7.0. 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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