PETALING JAYA: The near-term earnings outlook for Petronas Chemicals Group Bhd (PetChem) is likely to be solid on attractive valuations given the resilient oil and gas or O&G prices, say analysts.

       The group’s Pengerang Integrated Complex (PIC) has started in May, with its petrochemical plants expected to commence operations in phases.

       According to RHB Research, PetChem management is targeting 50% to 60% utilisation in the second half of 2022 (2H22) and subsequently ramp up to the optimal level of 90% in 2023.

       “We believe the plant will record minimal losses in 2H22 during the ramp-up phase,” the research house said in its latest report.

       PetChem’s average plant utilisation rate guidance ex-PIC for 2022 remained at over 90%, with the remaining two scheduled plants turnaround to be completed by 2Q22.

       “Overall petrochemical prices should remain elevated amid geopolitical uncertainties and high gas prices,” added RHB Research.

       Meanwhile, the research house noted that the RM7bil Perstorp Holding AB acquisition would enable PetChem to strengthen its petrochemicals portfolio and selectively diversify into derivatives and specialty chemicals.

       “The transaction is slated for completion by 2H22 pending shareholder-approval at an EGM and antitrust clearances in certain jurisdictions.

       “Post-acquisition, the company is estimated to remain at a net cash level of about RM7bil,” said RHB Research.

       According to RHB Research, PetChem management is targeting 50% to 60% utilisation in the second half of 2022 (2H22) and subsequently ramp up to the optimal level of 90% in 2023.

       It also pointed out that PetChem was off to a commendable start, when the group booked another solid quarterly earnings in the first quarter of financial year 2022 (1Q22).The group’s 1Q22 core earnings of RM2bil, which jumped 52% year-on-year, came in within expectations at 28% of RHB Research and 29% of street full-year estimates.

       The research house also maintained a “buy” call on the stock with a target price (TP) of RM12.21.

       TA Research, in its note to clients, said PetChem’s stunning 1Q22 results translated to the group’s record quarterly profits since its initial public offering.

       This was mainly driven by skyrocketing average selling prices (ASPs) for its product portfolios.

       On PetChem’s outlook, TA Securities said the group is expected to benefit from the strong ASPs, which implied high product spread to its olefins and derivatives (O&D) as well as fertiliser and methanol (F&M) products.PetChem’s natural gas feedstock is sourced from its parent Petroliam Nasional Bhd.

       This is largely based on “fixed pricing and favourable terms”.

       With the exception of the plants at the PIC that are in the process of being ramped up, most of PetChem’s plants are gas-based.

       On oil prices, TA Research said their strength is anchored by the lingering Russia-Ukraine crisis, subdued production from the organisation of the petroleum exporting countries plus and the United States, lean organisation for economic co-operation and development inventories and recovery in global aviation fuel demand.

       On the back of the current development, naphtha prices would remain escalated given that the product is a derivative of crude oil, it added. In turn, this will translate into inflated petrochemical ASPs as naphtha is widely used as a feedstock.

       TA Research has also raised its FY22 to FY24 ASP assumptions for both PetChem’s O&D and F&M segments by 17% to 32% to reflect actual year to date price trends.

       It maintained a “buy” on PetChem with a TP of RM11.40.

       Meanwhile, Hong Leong Investment Bank (HLIB) Research expected a slight dip in PetChem’s 2Q22 profits due to major planned maintenance for its PC fertiliser Sabah plant and PC Methanol plant two.

       “We think that PetChem will have yet another great year ahead as we expect its product prices to stay elevated in FY22,” the research house said.

       It noted that PetChem’s PIC would start in phases following the stabilisation of the refinery unit and steam cracker unit.

       The group planned to achieve utilisation in the mid-60% range for the first few months of operations before ramping up to a utilisation of 80% to 90% in FY23.

       “The use naphta as its feedstock would introduce some margin volatility to PetChem’s future earnings,” added HLIB Research.

       The research house also has a “buy” call on the stock with an unchanged TP of RM11.76.