This article first appeared in The Edge Financial Daily on April 20, 2017 - April 26, 2017

Petronas Chemicals Group Bhd
(April 19, RM7.58)
Maintain neutral with an unchanged target price of RM7.18: Petronas Chemicals Group Bhd (PetChem) announced that it has approved the final investment decision for an isononanol plant within the Pengerang Integrated Complex in Pengerang, Johor. The total investment cost is US$442 million (RM1.9 billion). The project is slated to be on stream by the second half of financial year 2019 (2HFY19).

The company guided that isononanol is an oxo alcohol which is mainly used for the production of Diisononyl phthalate, a high molecular weight phthalate plasticiser which is widely used in industrial applications such as automotive, wires and cables, flooring, buildings and construction. The company further noted that the proposed plant will have a production capacity of 250,000 tonnes per annum. Regionally, the latest isononanol plant is in Maoming, China, completed in December 2015, jointly developed by Germany’s BASF and China Petroleum and Chemical Corp (on a 50-50 basis). This plant has an annual production capacity of 180,000 tonnes per annum.

With a cash hoard of US$7.4 billion and negligible gearing, we do not foresee any issues pertaining to the funding for this isononanol plant.

At the group level, we remain cautiously optimistic about FY17 earnings estimates as there will be more turnaround activities in FY17, in particular in Kertih (second quarter of FY17 [2QFY17] to 3QFY17) which could take between 50 and 55 days. The plant utilisation rate for FY17 is expected to be approximately 87% to 90% — above the world-class standard but expected to lag behind that of FY16. — MIDF Research, April 19