PCHEM–Fundamental Analysis (9 Sep 2016)

Excel – http://1drv.ms/1nI9Vde

Latest Financial – Q2 2016 Financial Report (9 Aug 2016)

FY16 Q2 Results Highlight:

  • QoQ
    • Bottomline (+9% QoQ) was boosted by the combination of higher sales volume and product prices, which more than offset a weaker USD.
    • Plant utilization inched up to 94% (1QFY16: 92%) on improved methane and ethane supply. In 2QFY16, merely one aromatics plant underwent statutory turnaround (TA) (1QFY16: one propylene plant).
  • YTD
    • Profits were mainly boosted by cost efficiencies from stronger plant utilisation, and stronger sales volumes for Fertilisers & Methanol (F&M).
    • To a lesser extent, a stronger USD in 1H16 also boosted bottomline. This more than eclipsed the impact of lower ASPs.
  • PCHEM’s normal tax rates hover at 20-23%. This is likely temporary, as PCHEM will enjoy Investment Tax Allowance on its SAMUR project to be commissioned at end of 2Q16.

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.
  • In my opinion, fair value of PETGAS is from 6.5 to 7.0 (Uncertainty Risk: HIGH).
  • 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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