KUALA LUMPUR (Nov 7): Petronas Chemicals Group Bhd (Pchem) has dropped as much as 2.94% to RM5.93 in the morning trade on the back of its disappointing 3Q14 result reported yesterday.

At 10:47am, it pared some losses to settle 2.29% lower at RM5.97, with some 598,900 shares changing hands. It was also among the top losers across the bourse.

In a report today, CIMB research analyst Suwat Sinsadok has slashed his target price for Pchem to RM6.50 from RM7.70 previously and downgraded the stock to a “hold” rating due to the latter’s “disappointing” 3Q14 result.

“Despite the rising industry margin PChem’s 3Q14 result was disappointing, 27% below our and 12% below consensus forecasts. 9M14 core earnings was only 66% of our forecast, dragged down by the methane shortage that has been a drag to the fertilizer group since 2010,” he said.

The research house has cut its earnings per share forecasts for 2014 to 2016 by 18% to 21% to reflect our assumptions of lower utilisation rates for olefins and fertiliser plants.

Since 2010, PChem has seen consecutive operation disruptions including unplanned and maintenance shutdowns, utilities and water shortages, and the methane shortage, he said.

Meanwhile, TA Research maintained its “sell” call on Pchem with a lower target price of RM5.60 from RM6.04 previously.

“We maintain our downbeat view on the stock due to lack of earnings catalysts in the near term, coupled with execution risks based on the group’s track record. Furthermore, we are concerned that slower demand from China will result in compressed olefin spreads and weaker fertiliser prices,” the research house said.

It opined that the capacity expansion would only materialise in the longer term. Whereas PChem’s cash hoard of will likely be used to finance RAPID’s capex and thus offers limited upside to dividends. 

 Pchem’s net profit rose 4% on-year to RM661 million in the third quarter ended Sept 30, 2014 (3QFY14) from RM635 million, due to higher revenue as production volume rose, which the group said was a result of higher plant utilisation of 75% versus 70%.

However, sales volume did not increase in tandem and the higher production mainly catered for intermediary products.