Softer earnings for PetChem in FY25

PETALING JAYA: Following results for last year (FY24) that came in below expectations, analysts have lowered their earnings forecasts for PETRONAS Chemicals Group Bhd (PetChem) for this year.

The petrochemicals group swung into core net loss in the fourth quarter of last year (4Q24), dragging full-year net profit down 30.7% year-on-year to RM1.18bil.

The negative variance was primarily due to weaker-than-expected product spreads and higher-than-expected operating costs.

TA Research said it lowered the group’s core net margin assumptions for FY25 to FY26 by 3% to reflect higher feedstock costs and increased operational expenses.

“Selling and distribution costs are expected to rise by 16% to 19%, driven by elevated shipment volumes following the full ramp-up of operations at the Pengerang petrochemical complex in Johor.

“Additionally, higher shipping costs, particularly for methanol, will further weigh on overall margins,” the research house said in a report, adding that the adjustment focused solely on cost factors, as revenue increases had already been accounted for in its previous forecast.

“Hence, we have lowered our earnings forecast by 29% and 30.8% for FY25 and FY26, respectively,” the research house said.

TA Research said the olefin and derivatives (O&D) segment was expected to face continued pricing pressure amid sufficient supply and cautious customer spending. While ethylene and ethylene glycol prices were projected to remain stable due to plant outages and turnaround activity, weaker demand might cap any upside, the research house said.

Polyethylene demand is likely to see short-term support from inventory replenishment, whereas paraxylene prices could trend higher.

On the other hand, the fertilisers and methanol (F&M) segment should benefit from seasonal demand, particularly for urea and methanol.

Limited urea availability due to Iranian supply cuts, coupled with increasing demand from India and Thailand, should provide near-term price stability, said TA Research.

The specialties division is likely to experience a mixed demand environment in the first half of this year with ongoing challenges for speciality-chemical providers.

“Geographically fragmented demand recovery across key economies such as the United States, China, and Europe remains a headwind, impacting sales momentum.

While consumer goods and retail markets are expected to maintain their positive trajectory from late last year, construction and automotive markets may continue to face headwinds, limiting overall growth prospects.”

Following its earnings revision, TA Research lowered the stock’s target price to RM4.5 per share from RM5.53. It also downgraded the stock from “buy” to “hold”.