PETALING JAYA: Following a record net profit of RM1.96bil for the third quarter ended Sept 30, 2021 (Q3) of its financial year 2021 (FY21), Petronas Chemicals Group Bhd (PetChem) can see weaker sequential earnings in Q4 due to ongoing turnaround activity at its 63.5%-owned Asean Bintulu Fertiliser plant.

       That said, analyst reports issued yesterday largely had a “buy” call on the stock, as the petrochemicals group is expected to continue to post higher earnings on a year-on-year basis, boosted by continued increases in product prices.

       Valuation-wise, RHB Research said that the stock “remains attractive” and was trading below its five-year mean despite a projected 25% decline in its FY22 forecast earnings.

       The research firm expects further earnings upside if the moderation in average selling prices (ASPs) is less steep than anticipated, and if the group can kickstart the Pengerang Integrated Complex (PIC) project smoothly.

       Notably, analysts said that the plant utilisation rate of 94% for the nine-month period of FY21 (versus 95% for the same period in FY20) was comfortably within management’s earlier FY21 forecast guidance of 94% to 95%.

       For forecast FY22, management is still guiding for plant utilisation of over 90% despite turnaround activities at four plants – ethylene, derivatives, methanol and aromatic lines, said analysts following a briefing with the company’s management.

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

       AmResearch noted that for the 2022 prosperity tax, management indicated a 4% to 5% increase in tax based on the lower taxable income of FY20, which registered an effective tax rate of 15%.

       “This is likely to be lower than our more conservative FY22 forecast effective tax rate of 20%.

       “Even so, we retain our tax assumption given that higher product prices have boosted the FY22 forecast pre-tax profit currently to 4.1 times FY20,” said the research firm.

       Another salient highlight from the briefing is that the group’s 50%-owned petrochemical operations at PIC, which was earlier expected to start commercial operations in Q4 of FY21, is now slated to begin in Q1 of FY22, given the need to slowly ramp up activities.

       AmResearch said it was maintaining an average FY22 PIC plant utilisation of 60% to 70% for now, which is likely to reach break even for the group.

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

       “Hence, we expect steady near-term earnings as Brent crude oil prices have recently traded at or above the US$80 (RM335.60) per barrel threshold versus the average of US$68 (RM285.26) a barrel for Q3 of 2021.

       Meanwhile, RHB Research said it was increasing the FY21-FY23 forecast earnings by 3% to 9%, to factor in higher ASPs, especially for the fertiliser and methanol division.

       “Our FY22 forecast earnings remain largely unchanged, being offset by the imputation of additional tax expenses arising from the prosperity tax, which may impact earnings by around 5%.

       “While the actual impact would vary, PetChem has guided that the Cukai Makmur would have increased tax expenses by 3% to 4% on FY20 earnings, as not many subsidiaries did not achieve the RM100mil profit benchmark in 2020,” it noted.

       For the nine-month period, core profit stood at RM5.2bil.

       RHB Research has a target price of RM9.91, while AmResearch has a fair value of RM10.90 per share.