KUALA LUMPUR: Fresh off record quarterly earnings, Petronas Chemicals Bhd could see see weaker sequential earnings in the fourth quarter of the year due to ongoing turnaround activity at the Asean Bintulu Fertilizer plant, says TA Securities Research.

       However, the petrochemicals group is expected to continue to post higher earnings on a year-on-year basis, boosted by continued increases in product prices.

       This comes on the back of 9M21 core profit of RM5.2bil, which exceeded the expectations of both TA Securities and the consensus at 109% and 93% of their respective full-year forecasts.

       According to TA Securities, the variance versus the forecasts was mainly owing to stronger-than-expected product spreads.

       Meanwhile, Petronas Chemicals' management said it expects limited impact from Cukai Makmur in FY22 given that not many of its subsidiaries will be affected.

       "Pet Chem’s domestic marketing and trading arm is domiciled at Labuan. The latter has a low tax regime that will remain intact in spite of Cukai Makmur," said TA Securities.

       At an analyst conference call, Petronas Chemicals ran a simulation based on Cukai Makmur's impact on FY20 profit, which showed a limited increase of 4% to 5% to tax payments.

       However, TA Securities noted that the actual impact to the group's profits will ultimately depend on profitability based on prevailing products average selling prices and spreads.

       On outlook, the research firm said the current surge in gas price implies margin expansion for Petronas Chemicals given the higher product prices due to cost-push factor and the low fixed prices of gas feedstock procured from its parent Petronas.

       It noted that most of the group's competitors are confronted with cost pressure from higher naphtha feedstock price.

       As for polymer prices, TA Securities said they have been on an upwards tajectory since end-Sept, and are not expected to ease off in the near term given peak winter demand for gas feedstock.

       The brokerage raised its FY21-23 assumptions for ASPs by 5% to 38% to reflect actual 9M21 product prices and the improved outlook.

       It also raised its FY22 effective tax rate assumption to 11% to account for the expected impact of Cukai Makmur.

       "The effect of the above changes to our FY21-23 forecasts are an increase of 8%-36%," it said.

       "Following the upgrade to our forecasts, our target price on Pet Chem is raised to RM10.30. Our TP is based on unchanged 11 times CY22 EV/EBITDA. Maintain 'buy'," it added.