KUALA LUMPUR, April 13 — AmInvestment Bank forecasts Petronas Chemicals Group Bhd’s (PetChem) earnings for the financial years 2020 (FY20) to FY22 to be affected by lower product prices, lower plant utilisation (PU) rates and higher fixed overhead leverage.
The investment bank said the production cut by the Organisation of the Petroleum Exporting Countries and its alliances (Opec+) due to limited storage capacity provided some relief, but is likely insufficient to offset the drastic fall in oil consumption.
“We note that our FY20-FY22 earnings are half of consensus estimates due to lower product prices while lower PU rates translate to higher fixed overhead leverage,” it said in a research note today.
It said earlier on, PetChem’s management expected PU rates to be higher than the 92 per cent achieved in FY19 due to lower turnaround days with only the units in Gebeng and Labuan plants scheduled to undergo 30 to 40-day turnaround activities in the first quarter of 2020 (Q1 2020) and Q3 2020, respectively.
However, it said this seemed unlikely as limited storage facilities, together with reduced offtake from customers, could mean that production volume would need to be scaled back.
“Hence, we maintain our FY20–FY21 PU assumptions at 85-88 per cent for now,” it said.
Given the sharp drop in demand from China, which accounted for 18 per cent of PetChem’s FY19 production volume, it said PetChem is not expected to readily redeploy its output to other regions which are also experiencing Covid-19 outbreak.
The investment bank said petrochemical prices have decreased in tandem with the crude oil price downturn, stemming from the unprecedented global demand plunge due to the Covid-19 pandemic and the expiry of the Opec+ quota agreement following the Saudi-Russia quota discord.
It said demand for olefin products had already softened earlier by the unresolved United States-China trade war, which began last year.
“Since the beginning of the year, Brent oil price has fallen by 59 per cent, while naphtha decreased by 67 per cent, benzene 70 per cent, ethylene 37 per cent, paraxylene 30 per cent, methanol 22 per cent and polyethylene 12 per cent.
“Only urea, which is used in in the agriculture sector, registered a 23 per cent increase in prices due to production outages in China,” it added.
AmInvestment Bank has maintained its “sell” call on PetChem with an unchanged fair value of RM3.25 per share. — Bernama
