PetChem falls 2.3% as analysts voice concern over pricing weakness

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KUALA LUMPUR (Jan 11): Shares of Petronas Chemicals Group Bhd (PetChem) lost 20 sen or 2.3% this morning, making the stock one of the top losers on the bourse.

As at 10.30am the counter was trading at RM8.50, with 2.02 million shares done.

Analysts have cautioned on emerging headwinds as prices of ethylene/PE and urea/methanol are expected to drop.

"While PetChem (is) likely to achieve record net earnings in 2018 (also outperforming the KLCI by 23.5% in 2018), we see incremental headwinds being experienced by PetChem as we move into 2019, namely quarter on quarter (q-o-q) of around US$150-200 per ton drop in ethylene/PE prices, q-o-q ~US$100-150 per ton drop in urea/methanol prices (every 5% change in prices hits earnings by 5-6%) and steady improvement in MYR/US$," JP Morgan wrote in a note recently.

It added that in spite of first-time earnings from the upcoming RAPID project, it is now between 5% and 8% below FY19 and FY20 consensus estimates. The bank downgraded the counter to "underweight" with a target price of RM7.50.

Meanwhile, Hong Long Investment Bank, which recently added PetChem to its coverage, has a "hold" rating with a target price of RM9.74, stating concerns on potential olefins and derivatives pricing weakness on a weaker oil prices outlook.

According to Bloomberg, the counter has a consensus call of 10 holds, eight buys and five sells.