It hit an intra-day high of RM8.35 last Tuesday, valuing the group at RM66.8 billion before slumping to RM7.15 at the close of trading today with its market capitalisation at RM57.2 billion, a mammoth RM9.6 billion decline.
The sell-down intensified after a series of downgrades by investment banks and research houses following the announcement of its FY2022 results last Thursday.
Net profit plummeted 76% to RM481 million in the fourth quarter (Q4) from RM2.06 billion a year earlier, in line with lower earnings before interest, tax, depreciation and amortisation (Ebitda), unrealised foreign exchange loss, and lower profit contributions from joint ventures and associates.
For FY2022, net profit fell 14% to RM6.32 billion from RM7.35 billion for FY2021, due to lower plant utilisation at 89%, compared with the previous year’s 93%, as well as several statutory turnaround and maintenance activities.
Revenue rose 26% to RM28.9 billion against RM23 billion for FY2021, which was attributed to higher product prices, coupled with the stronger US dollar, as well as revenue contributions from the recently acquired speciality chemicals subsidiary Perstorp Holding AB.
Basic earnings per share (EPS) stood at 79 sen against 92 sen in the previous year.
Disenchanted with PetChem
PetChem’s results came in at 82% of Hong Leong Investment Bank’s (HLIB) full year forecast, and 85% below the consensus.
Maybank Investment Banking Group analyst Anand Pathmakanthan cut his 2023 and 2024 earnings forecasts for the company by 28% and 21%, respectively.
The company’s near-term outlook is cloudy due to a further delay in the commencement of its Pengerang petrochemical plant in Johor.
As a result of the challenging environment, and subdued macroeconomic outlook, Maybank Investment Bank downgraded its call from ‘hold’ to ‘sell’ and dropped the target price to RM7.35 from RM9.10.
TA Securities and HLIB issued similar downgrades, dropping their target prices from RM9.19 to RM7.56 and RM9.20 to RM6.54 respectively.
HLIB is the most pessimistic about the group’s outlook. “With the imminent start-up of new supplies globally, we strongly believe the petrochemical upcycle is now behind us as product spreads are seen to be coming off their respective peaks.
“The recent hikes in gas price will be a sore thumb to PetChem, and (there is) a huge possibility of upward revision of input gas cost (which was previously fixed) during the renewal in mid-2023,” it said.
Interestingly, MIDF Research has maintained a ‘buy’ call on the stock, although it did lower the target price to RM10.82 from RM11.77.
MIDF had also lowered the forecasted earnings for 2023 and 2024 by 17% and 24% respectively, yet was optimistic about the group’s prominence within the local industry.
The research house noted that slower demand and inflationary pressures remained as risks to the group’s operations.
Separately, CGS-CIMB commented that the group’s upside risks included improvements in the demand-supply balance due to cutbacks on petrochemical plant utilisation by high-cost producers and China’s reopening.
Meanwhile, the main downside risk was the threat of a deeper-than-expected recession hurting demand growth, it added.
Keeping their chin up
PetChem managing director and CEO Yusri Yusof defended the group’s performance, emphasising the full-year net earnings were commendable despite the volatility of the market.
The group’s acquisition of Perstorp Holding AB, a sustainability-driven global specialty chemicals company based in Sweden, was dubbed an “important milestone” for the group.
He added the addition of Perstorp would help the company participate in the growing market for paint, coatings and decarbonisation plans.
However, CGS CIMB said Perstorp is currently experiencing demand weakness that should prevail until end-Q1 2023F with a modest restocking recovery from Q2 2023F onwards.
“In the future, we plan to capitalise on Perstorp’s Project Air, an innovative approach involving carbon capture technology to produce sustainable methanol (and) this will help bring us closer to realise our net zero aspiration by 2050,” Yusri added.