KUALA LUMPUR (June 29): A potential sale by PETRONAS Chemicals Group Bhd (KL:PCHEM) of its 50% stake in the Pengerang joint venture could eliminate a major earnings drag and further unlock value, said Hong Leong Investment Bank (HLIB).
If the deal materialises, the earnings upside could be significant as Pengerang Petrochemical Company Sdn Bhd (PPC) is currently incurring losses of RM500 million to RM600 million annually based on PETRONAS Chemicals' 50% stake.
"We view this as a near-term catalyst, as a successful disposal would remove significant earnings drag and reduce the group's forex exposure."
"We understand that the proposed disposal would require minority shareholders' approval and is likely contingent on the completion of the ongoing Aramco transaction with PETRONAS," said the house in a note on Monday.
Any deal would be supported by an independent valuation and financial adviser to ensure an arm's-length, willing buyer-willing seller transaction, with valuation likely to be a key consideration given the current industry headwinds, it added.
The research house upgraded PETRONAS Chemicals to ‘buy’ from ‘hold’ and has a target price of RM5.56 per share, which is about 38.3% upside to its current price of RM4.02.
According to Bloomberg, among 21 analysts covering the stock, nine have ‘buy’ calls, nine have ‘hold’ ratings, and three have ‘sell’ recommendations, with target prices ranging between RM3.92 and RM7.05.
HLIB also expects PETRONAS Chemicals’ results for the second quarter ending June 30, 2026 (2QFY2026) will likely show stronger earnings, as the benefit from the rise in average selling prices (ASPs) across both its olefins and derivatives, and fertilisers and methanol segments following the Middle East conflict.
The research firm has slashed its FY2026 earnings forecast by 22% after lowering its urea ASP assumption to US$550 (RM2,233.55) per tonne, down from an earlier projection of US$700 per tonne.
However, it expects a rebound as seasonal planting demand returns, leaving its FY2027 and FY2028 forecasts unchanged.
As at market close on Monday, PETRONAS Chemicals' shares were up three sen or 0.75% at RM4.05, valuing the company at RM32.4 billion.