KUALA LUMPUR: Hong Leong Investment Bank (HLIB) has revised its earnings projections for Petronas Chemicals Group Bhd (PetChem), citing rising depreciation and interest costs linked to the Pengerang Petrochemical Complex (PPC).
The research firm anticipates EBITDA-neutral performance from PPC and has cut PetChem's earnings forecasts by 6.0 per cent for the fiscal year 2024 (FY2024), 20 per cent for FY2025, and 16 per cent for FY2026.
PetChem reported a core net profit of RM461 million for the third quarter of 2024 (3Q24), reflecting a 4.0 per cent quarter-on-quarter (QoQ) increase but a 12 per cent decline year-on-year (YoY).
For the first nine months of 2024 (9M24), the group's core earnings amounted to RM1.385 billion, a 14 per cent YoY decrease, only achieving 72 per cent of HLIB's projections and 61 per cent of consensus estimates.
HLIB attributed the shortfall to higher-than-anticipated operational expenses (opex) at PPC and weaker product spreads in the Olefins & Derivatives (O&D) segment.
While overall plant utilisation improved to 92 per cent in 3Q24 (up from 89 per cent in 2Q24), boosting production and sales volumes, cost pressures from PPC's pre-commercialisation phase offset these gains.
PPC is expected to achieve EBITDA breakeven post-commercial operation date (COD), but its financial contribution remains a concern due to high depreciation and interest expenses.
On a positive note, the Fertilisers & Methanol (F&M) segment displayed resilience, supported by a recovery in urea prices, which averaged USD342/MT in 3Q24, an 8.0 per cent QoQ increase.
However, polyethylene prices have softened in 4Q24, reflecting weaker global demand and declining crude oil prices. Winter restocking activities in Europe and Asia may offer temporary support.
"Nonetheless, we view that it should sustain at current levels in 4Q24 given the ongoing restocking activities during the winter season in European and Asian markets," it said in a note.
Overall, HLIB has revised its outlook for PetChem, downgrading its target price to RM4.00 from RM4.70 following the company's weaker-than-expected third-quarter (3Q24) earnings.
The firm also maintained its "Sell" recommendation, citing cost pressures and subdued product spreads as key challenges.