First Read: Petronas Chemicals Group BHD "Q126A: QoQ turnaround; within..."

研报英文原文证据摘录

First Read: Petronas Chemicals Group BHD "Q126A: QoQ turnaround; within..."

Forecast returns

Forecast price appreciation 26.6%

Forecast dividend yield 2.3%

Forecast stock return 28.9%

Market return assumption 8.6%

Forecast excess return 20.4%

Company Description

Petronas Chemicals Group (PCG) is the largest petrochemical company in Malaysia. It

operates in two major product segments, olefins and derivative products (O&D) and fertilizer

and methanol chemicals (F&M). PCG's major petrochemical products are paraxylene, urea,

ethylene, polyethylene and methanol. It is one of the few petrochemical producers in Asia

that use natural gas as its feedstock for production. The company is 69%-owned by Petronas,

the national oil company of Malaysia.

Valuation Method and Risk Statement

We use price to book valuation methodology to derive our price target for PCG.

Risks include: 1) further delays in the commissioning of or an underperformance by PCG’s

RAPID project could affect inventor sentiment; 2) any unplanned maintenance shutdowns of

a plant could affect earnings prospects; and 3) proposed foray into new segments like bio-

chemicals and M&A may generate lower-than-expected returns.

Petrochemical spreads are affected by industry cycles, which are driven by the supply and

demand balance. On the demand side, we believe the major risks are: 1) weaker-than-

expected demand from China because of changes in government monetary/fiscal policies;

and 2) a slower-than-expected macro recovery for developed economies. On the supply side,

we believe the major risks are unexpected operating issues that result in plant shutdowns,

which can translate to short-term support for chemical pricing in the market, but also lower

operating rates and earnings losses for companies.