KUALA LUMPUR (Feb 25): Kenanga Research and CGS-CIMB Research have raised their target prices (TPs) for Petronas Chemicals Group Bhd (PetChem) as the group’s latest full financial results for the year ended Dec 31, 2021 (FY21) were above their expectations.
In a note on Friday (Feb 25), Kenanga said PetChem’s FY21 core net profit of RM7.3 billion came in above expectations at 109%/113% of the research firm/consensus full-year earnings estimates due to stronger-than-expected average selling prices (ASPs).
“Additionally, the group announced a dividend of 23 sen per share, bringing its full-year dividends to 56 sen per share — also above expectations amid the stronger earnings — coupled with a higher payout ratio for the year (61% versus 50% the previous year),” said Kenanga analyst Steven Chan.
In tandem with the strength in Brent crude oil prices of late, Chan believes ASPs of PetChem’s products may continue trending up going forward, at least for the first half of FY22.
According to him, the price outlook for PetChem's olefins and derivative products is expected to continue improving over the next quarter amid increasing demand, while prices of its fertilisers and methanol products should remain largely stable.
“Meanwhile, we understand that the start-up of its Pengerang Integrated Complex (PIC) has been further delayed to end-2QFY22 (the second quarter ending June 30, 2022). As such, given an approximate six-month start-up period prior to commercialisation, we believe the PIC’s contribution this year should be rather minimal,” the analyst noted.
Kenanga upgraded PetChem to "outperform", with a higher TP of RM11 from RM8.75. Post results, the research house raised its FY22 earnings forecast by 60% to account for higher ASP assumptions.
“Based on our study, PetChem has the highest stock price correlation to Brent crude oil prices. If anything, given the recent strong rally in oil prices, we believe PetChem can serve as a trading proxy for investors looking for exposure to oil prices within the sector,” said Chan.
Meanwhile, CGS-CIMB Research said PetChem’s FY21 core net profit was 2% above its expectations and 13% above the consensus.
Its analyst Raymond Yap said PetChem will benefit from the uplift in petrochemical prices due to higher global oil prices and, at the same time, it is largely immune to feedstock cost pressure. The research firm raised its TP for the stock to RM10.76 (from RM9.97) and kept its "add" call.
“Our new TP is based on an unchanged 12-month forward EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortisation) multiple of eight times against CY23F (calendar year 2023) EBITDA, which is the mean since PetChem’s listing in 2011,” said Yap.
At the time of writing on Friday, PetChem shares had risen 22 sen or 2.39% to RM9.42, giving it a market capitalisation of RM75.36 billion. The stock has risen 21.08% over the past year.