This article first appeared in The Edge Malaysia Weekly on April 6, 2026 - April 12, 2026

THE global oil and gas disruption triggered by the Middle East conflict has prompted investors to rush to buy into beneficiaries of higher O&G prices, from upstream producers to contractors, tank operators, refiners and even petrochemical producers.

On Bursa Malaysia, PETRONAS Chemicals Group Bhd (PetChem) (KL:PCHEM) has emerged as the biggest winner — the only FBM KLCI component stock seen as a direct proxy to the Iran war. Its shares have doubled in just one month to break the RM6 mark, adding RM24 billion in market capitalisation as most fund managers have added exposure to the petrochemicals group.

This is in sharp contrast to its performance prior to the war, when its shares were hovering at record lows. It made losses for the first time in the financial year ended Dec 31, 2025 (FY2025), owing to the global petrochemical glut.

“PetChem is the glove maker of the current crisis. It’s a sweet year for the company,” says a head of research, referring to the multi-fold rise in rubber glove manufacturer stocks during the Covid-19 pandemic, owing to a global surge in demand.

“The market is going to take it to some stupid levels until the war ends. Can you afford not to hold PetChem if you are one of the fund managers?” He notes that investors have had limited options in a high oil price environment.

The closure of the Strait of Hormuz has plunged the market into a fuel shortage overnight — one likely to persist for the duration of the war, as new capacities take months, if not years, to come online.

To understand why PetChem is a direct beneficiary of high prices, one needs to look at its three core segments: fertiliser and methanol (F&M) as well as specialty chemicals — both of which derive their feedstock from natural gas; and olefins and derivatives (O&D), which come mostly from crude oil.

Unlike other players, PetChem’s F&M segment, anchored by its operations in Kertih, Terengganu, enjoys all the upside of product selling prices.

“We understand that PetChem’s ex-Pengerang operations run primarily on ethane and methane gas-based feedstock. The group has also renewed its ethane and propane supply agreement with PETRONAS (Petroliam Nasional Bhd) for five years through 2030, with feedstock costs largely fixed.

“Methane gas is priced based on a percentage of average selling prices (ASPs), which provide stable margins for its F&M products,” Hong Leong Investment Bank Research says in its March 16 note.

In view of rising global energy prices, CGS International said in a March 24 note that it expects average F&M selling prices for PetChem to rise 40% year on year in 2026.

The price movement “coincides with the peak spring planting season across key agricultural regions” where fertiliser demand typically accelerates, says MBSB Research, the second most bullish research outfit on PetChem, with a target price of RM6.60.

“Given that urea remains a critical input for crop yield optimisation and is not easily substitutable, buyers responded by accelerating procurement activity, resulting in a wave of precautionary purchasing,” MBSB Research says in an April 1 note.

One risk for PetChem is the possibility that the government may require the group to sell its fertiliser products domestically at capped prices to curb inflation, an analyst notes.

The F&M segment is insulated from supply shortages for now. Compared with crude oil, natural gas supply is in a better position, as the cut in the Middle East can still be offset by supply from other markets such as the US and Australia, according to Wood Mackenzie research director Yaw Yan Chong.

“The bigger problem is crude oil and products like naphtha — most of the supply from there goes to this part of the world and there’s no substitute,” Yaw tells The Edge.

Naphtha exports are reportedly being rationed by other producing countries because of crude shortages.

Furthermore, the tight crude oil supply could have an impact on PetChem’s facilities such as those in Pengerang, Johor — undertaken via a joint venture with Saudi Aramco — which have been affected because the facilities source mainly from Saudi Arabia.

It is understood that the Pengerang facilities were already operating at very low utilisation. However, analysts and fund managers whom The Edge spoke to are divided on the extent of the downside, as the facilities have long been loss-making because of poor operational reliability.

“What has changed is Kertih and F&M, which will more than offset losses from the crude oil-linked O&D segment,” an analyst explains.

Another head of research believes, however, that the upside could be capped if PetChem’s Pengerang facilities are shut down.

Based on its average FY2026 consensus earnings per share forecast of 17.6 sen and following the surge in its share price to RM5.97 last Thursday, PetChem shares were trading at a forward price-earnings ratio of 33 times.

While some may argue that earnings projections have yet to fully reflect the market squeeze, it should be noted that of the 15 research houses actively covering the stock post-Iran war, only six have target prices above RM6.

The stock has eight “buy” calls, six “hold” and one “sell” recommendation, with target prices ranging between RM3.85 and RM6.90 — an average of RM5.65.

So far, the projection ascribed by analysts is conservative, compared with the previous industry upcycle enjoyed by the petrochemicals sector through the pandemic.

In FY2021, PetChem’s annual profit hit as much as RM7.35 billion, or 92 sen per share, lifting its share price to a record high of above RM10.

This year, the consensus net profit forecast is expected to be higher at RM1.22 billion, or 17.6 sen per share, before declining in FY2027.

“Once the market normalises, the industry will still be structurally oversupplied,” a fund manager warns, stressing that any earnings multiple above 20 times — similar to PetChem’s historical average — would already have priced in the upside from the fundamental’s perspective.

As the F&M operating capacity has reached a peak, any further upside will come from even higher ASPs. PetChem’s F&M utilisation rate stood at 89% last year, according to its annual report.

Again, this hinges on how long the war drags on — a timeline that remains anybody’s guess. Last Wednesday, US President Donald Trump vowed to strike and destroy bridges and electric power plants in Iran, in his latest threat to hit the country’s infrastructure.

From the Middle East, ships take about one month to reach their destinations. As the last of pre-war shipments have arrived, the market can better assess the true extent of the supply squeeze, Wood Mackenzie’s Yaw says. “This month will be interesting to watch.”

At the same time, the surge in fund flows into PetChem shares, amid a lack of alternatives, reflects the underlying near-term volatility.

The stock fell 11% in a single day last Wednesday, before rebounding 10.5% the following day. Last Friday, it closed at RM5.90 — still 4.4% above the consensus target price.

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