KUALA LUMPUR (May 28): Petroliam Nasional Bhd’s (PETRONAS) acquisition of Aramco’s stake in PETRONAS Chemicals Group Bhd (KL:PCHEM) could set the stage for a further simplification of the Pengerang value chain, potentially including a transfer of the group’s 50% stake in the petrochemical arm.
Further, PETRONAS Chemicals gains a major earnings lift if its Pengerang exposure is removed, according to CGS International.
“PETRONAS’ acquisition of Aramco’s stake in PRefChem could be a precursor to PETRONAS’ acquisition of PCG’s (PETRONAS Chemicals) 50% stake in PPC (Pengerang Petrochemical Company Sdn Bhd)...,” the house said in a note on Thursday.
The research house said the acquisition could turn into an earnings swing factor for PETRONAS Chemicals as it may eventually exit its loss-making exposure to the Pengerang petrochemicals operations.
“Without PPC, PCG could return to the previous glory days of producing from ethane and methane gas feedstock based on very lucrative feedstock pricing arrangements and will no longer have exposure to the loss-making naphtha-based feedstock operations at Pengerang.”
CGS International estimated that excluding the Pengerang petrochemical losses could lift PETRONAS Chemicals’ financial year ending Dec 31, 2027 (FY2027) to FY2028 core net profit forecasts by 67% to 96% respectively.
It said such a scenario would materially improve PETRONAS Chemicals’ profitability, as it removes a recurring drag on earnings that has weighed on the group in recent years.
However, it stressed that the uplift scenario is conditional and depends on whether PETRONAS proceeds beyond the current asset consolidation to take full control of the petrochemical joint venture.
If the divestment does not go through, CGS International said its existing earnings assumptions for PETRONAS Chemicals remain unchanged.
Shares of PETRONAS Chemicals reached an intraday low of RM5.36 a share before closing almost flat at RM5.51 a share on Thursday, valuing the group at RM44.1 billion. Some 7.18 million shares changed hands.
CGS International noted that sentiment around the stock has been pressured by concerns over petrochemical pricing volatility and feedstock costs, alongside operational risks from scheduled maintenance activities at Kertih in the second quarter.
Despite the share price weakness, CGS International kept its positive stance on the stock with an 'add' rating and unchanged target price of RM6.58, based on a 1.4 multiple target price-to-book value.
It added that it expects a sharper earnings recovery in the second quarter as a potential catalyst for rerating.