This article first appeared in The Edge Financial Daily, on November 4, 2015.

KUALA LUMPUR: National oil company Petroliam Nasional Bhd (Petronas) is injecting three companies that are currently undertaking petrochemical works at its RM60 billion Refinery and Petrochemical Integrated Development (Rapid) project in Johor, into Petronas Chemicals Group Bhd (PetChem) for RM13,000.

Following that, PetChem, which announced yesterday that its latest quarterly net profit rose 38.6%, will assume the assets and liabilities of the three companies, which amount to approximately US$110 million (RM470.52 million).  

PetChem — the chemical arm of Petronas in which the latter owns 64.35% — is acquiring the units from Petronas Refinery and Petrochemical Corp Sdn Bhd (PRPC), Petronas’ wholly-owned unit.

“The payment for the paid-up capital in the companies of RM13,000 is expected to be paid to PRPC on Nov 3 (yesterday) while the liabilities of the companies of US$110 million are expected to be settled by the respective companies before the end of the year,” said PetChem in an announcement to Bursa Malaysia yesterday.

The three companies — PRPC Glycols Sdn Bhd, PRPC Polymers Sdn Bhd and PRPC Elastomers Sdn Bhd — are currently working on petrochemical projects at Rapid with a future total investment cost of about US$3.9 billion, with a combined total capacity of approximately 2.7 million tonnes per annum (mtpa), it added.

Following the acquisition, the three companies will be its wholly-owned subsidiaries. However, the chemical products manufacturer said there may be a potential dilution to its equity in the project companies, based on the current arrangements between PRPC and its existing partners — but did not elaborate.

PetChem said the transaction does not have any effect on its issued and paid-up share capital, or its earnings or net assets at the transaction date of Nov 3, while the three units’ projects are expected to contribute positively to both future revenue and earnings.

First petrochemical production is expected to commence after the completion of the PRPC refinery, which is scheduled for 2019.

In a separate filing, PetChem said its net profit climbed 38.58% to RM916 million or 11 sen per share in its third quarter ended Sept 30, 2015 (3QFY15), from RM661 million or 8 sen per share in the same period last year.

The better earnings was underpinned by higher sales volumes, favourable exchange rate movement and lower feedstock costs, particularly for naphtha, propane and butane.

It recorded a 2.5% year-on-year growth in its 3QFY15 revenue to RM3.64 billion from RM3.55 billion, due to higher sales volumes and a favourable exchange rate movement that have offset the impact of lower average product prices.

For the nine months ended Sept 30, 2015 (9MFY15), the chemical products manufacturer’s net profit added 6.12% to RM2.08 billion or 26 sen per share, versus RM1.96 billion or 25 sen per share last year, due to the same reason.

Cumulative revenue fell 5.7% to RM10.09 billion, from RM10.7 billion last year, on lower average product prices.

Going forward, PetChem expects its operations to be primarily influenced by fluctuations in international petrochemical product prices, global economic conditions and the utilisation rate of its production facilities; the group aims to achieve better plant utilisation for the year.

Shares in PetChem (fundamental: 2.1; valuation: 1.1) ended  yesterday 19 sen or 3.01% higher at RM6.50, which gives it a market capitalisation of RM52 billion.

The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.