PETALING JAYA: Petronas Chemicals Group Bhd’s (PetChem) positive growth prospects have been enhanced with its proposed acquisition of Swedish specialty chemicals group Perstorp Holding AB.

       Market observers noted that the proposed deal would add value to PetChem by strengthening the integrated chemical producer’s portfolio and earnings resilience.

       “We are positive on this acquisition as it will result in significant enhancement to PetChem’s specialty chemicals portfolio.

       “It enables the group to diversify from low-margin commoditised basic petrochemicals and upgrade to niche value-added products,” TA Research said.

       “Correspondingly, this would boost PetChem’s earnings resilience against market cyclicality and volatility,” it added.

       PetChem on Tuesday announced its plan to acquire the entire equity interest in Perstorp for €1.54bil (RM7bil).

       Move will help boost group’s earnings resilience

       It said in a statement it had signed a securities purchase agreement for the proposed acquisition, which valued Perstorp at an enterprise value of €2.3bil (RM10.5bil).

       The proposed acquisition is expected to be completed in the second half of this year.

       TA Research maintained “buy” on PetChem, with unchanged target price of RM11.60.

       “This acquisition enables the group to deploy its sizeable cash balance of RM16.4bil. Post-acquisition, PetChem will remain in comfortable net cash position,” the brokerage said.

       “Moreover, Perstorp will boost Pet Chem’s environmental, social and governance (ESG) ratings. This is underpinned by Perstorp’s environmentally friendly products and solutions,” it added.

       Meanwhile, AmInvestment Bank Research (AmInvest) raised its fair value for PetChem to RM11.10, while reiterating its “buy” call on the counter, following the group’s announcement of its proposed acquisition of Perstorp.

       “We are positive on this development, which will strengthen PetChem’s basic petrochemicals portfolio and accelerate its expansion into higher margin derivatives, specialty chemicals and solutions.

       “This involves end markets such as paints and coatings, construction, automotive, personal care and food, feed and nutrition, and access to common end markets that offer significant cross-selling opportunities and growth prospects to the rest of the group’s operations,” it added.

       AmInvest said it remained bullish on PetChem’s earnings prospects, given the strong correlation to its share price as firmer naphtha costs will support petrochemical product prices.

       RHB Research, which maintained its “buy” call on PetChem with an unchanged target price of RM12.21, said it would keep its earnings forecasts for the group unchanged pending further clarification on the deal.

       “While we acknowledge the rationale for the Perstorp acquisition – to strengthen PetChem’s petrochemicals portfolio and diversify into specialty chemicals – we are watchful over the sustainability of record-high earnings, which would otherwise suggest higher forward valuation if the price turns, given Perstorp’s volatile earnings track record over the past five years,” it said.