KUALA LUMPUR: Petronas Chemicals Group Bhd (PetChem) is poised to record its best-ever profits in the financial year 2021, according to Hong Leong Investment Bank Bhd (HLIB).
HLIB expects strong earnings delivery in the second half of 2021 boosted by PetChem's firm product spreads for its olefins and derivatives segment and skyrocketing urea as well as methanol prices.
"We believe that PetChem is also on track to record its best-ever annual profits in the financial year 2021 (FY21)," it said in a report today.
The firm said both urea and methanol prices continued their uptrend in the third quarter (Q3) 2021, going up 16 per cent and six per cent respectively from 2Q21.
Cumulatively for the nine months of 2021 (9M21), urea prices were up 75 per cent year on year (YoY) while methanol prices increased 66 per cent YoY, it said.
"We believe that urea prices will continue their uptrend in the near-medium due to the cost-push effect from elevated feedstock (natural gas) prices.
"Hence, we expect PetChem's fertiliser and methanol (F&M) segment to buoy the group's overall performance in the next few quarters," it said.
HLIB said PetChem's product spreads remained relatively steady in Q3 and it expects an uptick in early Q4.
The firm said it would not be surprised should there be a slight decline in profit contribution quarter on quarter (QoQ) from the group's O&D segment in Q3 2021.
"On the other hand, we highlight that product prices were up 37-61 per cent YoY in 9M21. We also noticed a decent uptick and recovery in product prices in early October 2021, which we believe would augur well into the rest of Q4 2021," it said.
HLIB has upgraded PetChem to a "Buy" from "Hold" with a higher target price of RM10.65 from RM8.75.
"Our valuation is based on 9.0 times FY22 forecast earnings before interest, taxes, depreciation, and amortisation (Ebitda), which is at a slight discount to its five years historical pre-pandemic mean Ebitda of 9.5 times," it added.