Target Price : RM8.15
Above consensus. RM2,818m (+40.3% YoY) 9M11 PATAMI was 74% of our full year forecast (within expectation) and 78% of consensus (ahead). These are impressive results driven by high utilization rates, strong product margins and relatively stable input cost. PCHEM will continue to leverage on the current high chemical prices and should obtain strong results in 4Q11. Maintain Buy, with a TP of RM8.15/share based on 13.5x 2012 PER, in line with peers’ historical mean PER.
Well oiled machine. RM1,149m 3Q11 PATAMI (+128.9% YoY, +31.5% QoQ) was higher than our expectation of RM1,018m. The main driver was an average utilization rate of 84% (against our 83% assumption) which helped boost volumes by 3% YoY. Product prices were also significantly higher by an average of 49% YoY (against our 54% assumption).
Record margins. 3Q11 EBITDA margin was at 40.9%, which is 15 ppt improvement YoY. Equally impressive, 3Q11’S PATAMI margin of 24.8% was 8.9 ppt higher YoY. To add further credibility to these already strong numbers, the tax rate in 3Q11 was at a full rate of 25.2% against 18.8% for the same period last year. PCHEM has utilized all of its tax benefits. As a sweetener, an interim single tier DPS of 8 sen was announced, the stock will go ex-div on 9 Dec 2011.
2011 on track to beat consensus. There has been a slew of downgrades on PCHEM recently as many North Asian petrochemical players have been underperforming. Consensus fails to see the distinction between PCHEM, which uses gas as its feedstock, and its North Asian counterparts which use naphtha as their feedstock. Naphtha is significantly more volatile and expensive whereas gas is cheap and stable. If anything, PCHEM is benefitting immensely under the current environment as the high naphtha cost supports for high product prices in order for producers to breakeven.
Maintain forecasts. We are confident that PCHEM will be able to meet our 2011 forecast. Utilization should stay above 80% in 4Q11 as there are minimal scheduled maintenance shutdowns during the period and product prices continue to stay strong. We will update on the impact of the Ethylene plant closure in Kerteh post an analyst call later today.
Price up, volume down. 3Q11 revenue was up by 46.4% YoY, due exclusively to higher product prices. As a result of the higher product prices, EBITDA grew by 131.6% YoY to RM1,897m with 15.0 ppt higher margins at 40.9%. This is a highly respectable margin which is among the highest of any petrochemical company in the world.
Utilisation rates recovered. As shown below, the plants utilization rates have recovered across all the divisions in 3Q11. This is because the heavy maintenance shutdowns were carried out in 1H11 and 2H11 should have a much smoother run with minimal operational disruptions.