KUALA LUMPUR (Jan 2): Petronas Chemicals Group Bhd (KL:PCHEM) may further write down the value of its assets while losses could balloon at one of its key subsidiaries, CGS International warned as it downgraded the stock.

There is also limited upside to its share price following a rebound from more than a month ago, CGS noted in downgrading Petronas Chemicals to “hold” from “add”, amid increasing caution among research houses covering the stock.

“… we think that the share price recovery has run its course and downside risk factors have now come into view,” the house said.

Shares of Petronas Chemicals rebounded 13% in the final month of 2024, reducing last year’s total loss to 26%, fuelled by a recovery in the US dollar and potential higher market share following a refinery shutdown by Lotte Chemical Titan Holding Bhd (KL:LCTITAN).

Petronas Chemicals now has nine “sell”, five “hold” and six “buy” recommendations, with an average target price of RM4.98, according to Bloomberg, implying potential gain of less than 1% in the next 12 months.

Every 10% impairment on its 50%-owned Pengerang Petrochemical Company Sdn Bhd’s carrying value could reduce Petronas Chemicals’ book value by 11.25 sen per share, CGS flagged.

Operating losses at Pengerang Petrochemical could also be wider-than-expected amid uncertainties on feedstock from the affiliated Pengerang Refining Company Sdn Bhd, the research house said.

Further, the Malaysian Inland Revenue Board may move to limit the extent of the feedstock’s below-market price transfer between Pengerang Petrochemical and Pengerang Refining, which could undermine Petronas Chemicals future profitability, it noted.

CGS separately upgraded Lotte Chemical to “hold” from “reduce” following a sharp sell-off in the past three months while the company worked to slow cash burn. The shutdown of its Naphtha Cracker 1 at Pasir Gudang, Johor due to sustained losses is a “positive development”, the research house said.

A shutdown of the refinery — which produces annually up to 430,000 tonnes of various intermediate petrochemicals such as ethylene and propylene — means that Lotte Chemical will lose 33% of its capacity, CGS said.

Lotte Chemical “is finally taking the action it needs to survive the downturn” after nine consecutive quarters of gross losses, CGS noted, saying that the company could call on its parent company for cash injections in the future or dial down its Malaysian plant utilisation further.

Shares of Lotte Chemical, meanwhile, have lost more than half of their value in 2024. There are now three “sell”, one “hold” and one “buy” calls on the stock following CGS’ upgrade.