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Petronas Chemicals: Maintain HOLD

Weak FY24 performance for Petronas Chemicals: Earnings missed expectations, coming in at only 49%-50% of forecasts due to lower product prices and losses from the Pengerang Integrated Complex (PIC).

“Earnings cut: We lower our FY25 and FY26 earnings forecasts by 27% and 32%, respectively, due to higher depreciation costs, continued PIC losses, and flat product prices.

“New Target Price (TP): RM4.70/share (previously RM5.10), pegged to CY26 EV/EBITDA of 5.5x, which is -2 standard deviations from its 10-year average,” says Analysts.

Key Highlights: Petronas Chemicals

Earnings Performance & Forecasts

• FY24 core net profit (CNP): RM922 million (-39% YoY)

• Performance was well below expectations, mainly due to:

• Additional depreciation and finance costs

• PIC operational losses (due to lower plant utilisation and the absence of a special feedstock discount)

• Earnings forecast cuts:

• FY25: -27%

• FY26: -32%

Pengerang Integrated Complex (PIC): Focus on EBITDA Neutrality

• PIC losses have been a key drag on earnings.

• FY25 outlook: Losses expected to narrow as plant utilisation ramps up to 60-70%.

“We remain cautious but expect improving product spreads to support gradual recovery.”

Petrochemicals Outlook: Bottoming Out

• Weak demand and overcapacity continue to pressure margins.

• Key trends by segment:

• Olefins & derivatives: Downside risk limited, as new capacities are already priced in.

• Fertilizer & methanol: Near-term demand boost from seasonal restocking (India, Thailand).

• Specialty chemicals: Slow growth, with a projected 5-year CAGR of 3% (2025-2029).

Investment Outlook: Petronas Chemicals

• Valuation: New TP of RM4.70/share, reflecting a more cautious approach to the current downcycle.

Key Risks:

• Continued PIC losses and lower utilisation rates

• Weak global petrochemical demand

• Longer-than-expected recovery in product prices

Conclusion

PChem remains in a challenging downcycle, with near-term earnings weighed down by PIC losses and weak petrochemical margins. While downside risks appear capped, recovery will take time, warranting a HOLD rating with a TP of RM4.70/share.

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