Concerns on expensive feedstock weighs on Petronas Chemical

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KUALA LUMPUR (Jan 28): Petronas Chemicals Group Bhd (PetChem) share price dips as much as 3.6% today, amid concerns petrochemical prices have by as much as 30% to 35% since late last year.

At 2.43 pm today, PetChem (fundamental: 2.7; valuation: 1.2) declined 13 sen or 2.3% to RM5.42. The stock is the eighth top decliner on the stock exchange today, with some 1.2 million shares. It hit a day's low of RM5.35 in the morning session.  

In a research note, Maybank Investment Bank Research commented that the “extreme volatility” in feedstock prices has pushed the industry to destock their inventories, given many consumers have opted to purchase on a spotty consignment basis.

But the research house believes the plunge in product price is temporary.

“Inventory destocking exercise can only go on for two to three months, based on historical examples,” Maybank IB research analyst Mohshin Aziz wrote in a note today.

Nevertheless, he cut his earnings forecasts for FY14 by 11.6%, FY15 20.5% and FY16 8.9%, in light of lower average selling prices of petrochemicals and the weaker ringgit against the US dollar.

“1Q FY15 earnings will likely to disappoint and potentially unnerve many,” he said, noting the petrochemical industry has been “in a state of flux” since the past four weeks.

The analyst also downgraded PetChem to a “hold” call, with a lower target price of RM5.35, from RM6.50.

On a fundamental basis, Mohshin indicated the supply-demand balance seemed to be healthy.

Kenanga Research in a note today, said PetChem would see immediate technical support and resistance levels at RM5.25 and RM5.59 respectively.

(Note: 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.)