KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
Petronas Chemicals Group Bhd (PetChem) is expected to experience weaker earnings in the second half of the financial year ending Dec 31, 2024 (2HFY2024), due to declining average selling prices (ASPs) in the olefins and derivatives segment as regional supply increases following the end of shutdowns, according to analysts.
Key Highlights:
Earnings Pressure: CIMB Research noted that the fertilisers and methanol segment is also expected to face challenges, particularly with China lifting its export restrictions on urea, which will likely depress urea prices further as ammonia costs decline.
Operational Challenges: Planned plant turnarounds, including those at PC Ethylene and Polyethylene in Kertih in 3QFY2024 and Asean Bintulu Fertilizer in 4QFY2024, are anticipated to reduce utilisation, production, and sales volumes, adding to the downward pressure on earnings.
Losses at PIC: PetChem's 2QFY2024 core earnings were impacted by higher-than-expected losses at the Pengerang Integrated Complex (PIC), with a RM100 million loss in the quarter, significantly higher than the RM10 million loss in 1QFY2024. This led to a 1% year-on-year (y-o-y) and 8% quarter-on-quarter decline in core net profit to RM445 million for 2QFY2024.
Revised Projections: CIMB has revised its FY2024-26 earnings projections downward by 5.2% to 9.6% and reduced its sum-of-parts-based target price by 7.3% to RM6.04, while maintaining a 'hold' recommendation on the stock.
Commercial Operation Delays: BIMB Securities highlighted that the commercial operation date (COD) of the PIC could further drag earnings in 2HFY2024. However, new revenue streams from the commencement of several new plants, such as those in Gurun, Kedah, Sayakha, India, and Gebeng, may partially offset the impact.
Stock Rating: Following a decline in share price, BIMB upgraded PetChem to a ‘hold’ with a target price of RM6, noting that the stock is trading slightly above its long-term average and that the risk-to-reward ratio appears balanced.
Recent Performance: Last Friday, PetChem reported a 24% increase in net profit for 2QFY2024, reaching RM777 million compared to RM628 million in 2QFY2023. Revenue for the quarter rose 8.6% y-o-y to RM7.73 billion. Despite the challenges, PetChem declared a higher interim dividend of 10 sen, up from eight sen in 1HFY2023.
Outlook: While PetChem has seen a recent increase in profit and revenue, the outlook for the second half of 2024 remains challenging due to anticipated lower ASPs, operational costs at PIC, and potential delays in commercial operations at new plants. Analysts are cautious, with revised earnings projections and a focus on how new revenue streams might mitigate some of these challenges.
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