PChem: Weaker Performance

Background

Petronas Chemicals Group Bhd (“PChem”) is an integrated petrochemicals producer, involved in the manufacturing, marketing and selling diversified petrochemical products, including olefins, polymers, fertilizers, methanol, glycols and other basic chemicals and derivative products.

Recent Financial Results

For QE31/3/2016, PChem's net profit dropped 16% q-o-q or 2% y-o-y to RM592 million while revenue slipped 9% q-o-q but remained relatively unchanged y-o-y at RM3.15 billion. Revenue dropped q-o-q due to lower average selling prices which had more than offset higher production & sales volume (with plant utilization rate at 92% as compared to 86% in QE31/12/2015). Despite 12%-increase in EBITDA - as a result of higher volumes & lower opex - PAT dropped by 15% q-o-q to RM671 million as preceding quarter result includes reversal of provision for decommissioning costs and higher interest income.


Table: PChem's last 8 quarterly results


Chart 1: PChem's last 23 quarterly results
 
Valuation

PChem (closed at RM6.41 yesterday) is now trading at a PER of 18.5 times (based on last 4 quarters' EPS of 34.6 sen). At this PER, PChem is fairly valued. It paid a dividend of 18 sen for FY2015 which translates to a DY of 2.8%.

Technical Outlook

PChem dropped back to its intermediate uptrend line, SS at  RM5.90-6.00 on May 10. That's just before the release of its latest quarterly result. While last quarter was weaker that the immediate preceding quarter, the result was not unexpected.


Chart 2: PChem's weekly chart as at May 11, 2016 (Source: ShareInvestor.com)


PChem should find support at RM6.00 from the uptrend line. However if it failed to stay above the RM6.00 mark, it may enter into a downtrend.


Chart 3: PChem's monthly chart as at May 11, 2016 (Source: ShareInvestor.com)

Conclusion

Based weaker financial performance and fairly valuation, PChem is rated as a HOLD. This rating is only valid if the share price remains above the RM6.00 mark.
 
Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, PChem.