KUALA LUMPUR (May 22): PETRONAS Chemicals Group Bhd (KL:PCHEM) rose on Friday after the company returned to the black though analysts remained broadly cautious on the stock.
While some believe there is limited downside following the recent share price weakness, they remain divided on the potential for further gain after the sector's strong rally in recent months.
Analysts attributed the improved earnings to higher petrochemical prices, stronger product spreads and better sales volumes amid supply disruptions linked to the Middle East conflict rather than stronger fundamentals.
While most research houses raised their earnings forecasts, Hong Leong Investment Bank (HLIB) and CIMB Investment Bank (CIMB IB) maintained their 'hold' ratings for the counter, citing lingering concerns over weak end-market demand with potential industry overcapacity and operational uncertainties.
Shares of PETRONAS Chemicals were up by 23 sen or 4.2% to RM5.68 in early trade on Friday, valuing the group at RM45.4 billion. The stock has gained nearly 92% from the end of February amid a spike in product prices in the wake of geopolitical conflict in the Middle East.
Bloomberg data showed a split between 19 research houses as there are nine ‘buy’ calls, nine ‘hold’ recommendations and only one ‘sell’ rating. The 12-month average target price is RM6.08 while the return potential stands at 7%.
In a research note, CIMB IB said that the upside could be limited by lower utilisation rates in the current quarter because of planned maintenance works at key plants — the Kertih Integrated Petrochemical Complex and the Asean Bintuli Fertilizer plant. It expects the utilisation rate to lower to 80% in the second quarter compared to 87% in the first quarter.
CIMB IB also noted that commodity petrochemical prices have started easing from their April highs as weaker demand conditions limit customers’ willingness to absorb further price increases.
It added that earnings could continue improving in coming quarters due to the full-quarter impact of stronger product spreads and selling prices, as well as narrower losses coming from the Pengerang Petrochemical Company (PPC) plant.
"We may turn more positive on the stock should supply chain disruptions in the Middle East lead to industry-wide capacity rationalisation, potentially resolving the sector’s overcapacity issue on a more permanent basis," said CIMB IB.
HLIB said PETRONAS Chemicals' stronger-than-expected selling prices and sales volume prompted it to raise its financial year ending Dec 31, 2026 (FY2026) and FY2027 earnings forecasts to RM2.5 billion and RM648 million respectively. But it lowered its target price to RM5.63.
The research house expects operations at the PPC plant to gradually resume by June after alternative supply sources are secured, as the plant has been offline since end-March due to feedstock supply constraints.
Among analysts, TA Securities was more positive on the stock by upgrading its rating to ‘buy’ from ‘hold’ after recent share price weakness but maintained its target price of RM6.56. The brokerage said risk-reward had become more attractive following the correction.
“Nonetheless, prices of key petrochemical products are likely to remain elevated relative to pre-conflict levels through end-2026, supported by ongoing supply disruptions around the Strait of Hormuz, and China’s export controls, which continue to tighten regional supply dynamics,” said TA Securities.
TA Securities said that PETRONAS Chemicals is likely to focus on preserving margins rather than maximising production output from the PPC restart.