KUALA LUMPUR (June 25): PETRONAS Chemicals Group Bhd (KL:PCHEM) could swing back to the red in 2028 as industry oversupply returns and erases margins, TA Securities warned.
While the company will be in the black for this year, the turnaround is due to the temporary supply shock from Middle East geopolitical conflict rather than structural improvement in industry fundamentals, the research house said in a note downgrading the stock to ‘sell’ on Thursday.
“The sector's oversupply challenge remains unresolved,” TA Securities said.
TA Securities joins a very small minority of research houses that include Maybank Investment Bank in downgrading the stock to ‘sell’. There are now eight ‘buy’, 10 ‘hold’ and three ‘sell’ calls among the houses tracked by Bloomberg. The average target price is RM5.64.
Shares of PETRONAS Chemicals — which manufactures olefins, polymers, fertilisers, methanol, and specialty chemicals — fell as much as 17 sen or over 4% to RM3.93.
The stock has now lost more than one-third of its value from the peak in March as the US and Iran largely agreed to cease a war that lasted more than three months. However, attention is now turning back towards an industry glut and weak demand.
As logistical bottlenecks ease and Middle East exports recover, petrochemical prices and spreads should gradually revert towards pre-conflict levels, removing a key earnings tailwind for PETRONAS Chemicals, TA Securities said.
“Alongside the Middle East exports normalising and continued capacity additions in China, we expect petrochemical spreads and margins to weaken from 2027 onwards, reinforcing our view that the current earnings strength is cyclical rather than structural,” the house noted.
PETRONAS Chemicals could make a net profit of RM1.17 billion this year before falling to RM520.2 million in 2027 and by the end of 2028, the company could report a net loss of over RM604 million, according to TA Securities’ estimates.