Gradual recovery forecast for PetChem

PETALING JAYA: PETRONAS Chemicals Group Bhd’s (PetChem) valuations appear lofty at the moment and could be vulnerable to any weakness moving forward.

Maybank Investment Bank Research (Maybank IB) expects a profit contraction in the financial year 2025 (FY25) due to the consolidation of Pengerang Petrochemical Co’s (PPC) losses into PetChem’s financials.

“We believe that the worst is not over for the petrochemical sector.

“We deem PetChem’s valuations rich at 22 times price-to-earnings ratio (PER) of our revised forecast FY26 earnings per share, given the cyclical nature of the industry and challenging sector outlook,” it said.

The PPC registered a wider earnings before interest, taxes, depreciation, and amortisation loss of RM170mil in the first quarter on Pengerang Refining Company’s (PRC) unscheduled maintenance, which was extended till June 2025 from March 2025 previously.

The research house noted PetChem’s recent first-quarter results appeared weak with a core net profit of RM79mil, which it said missed its and consensus’ full-year estimates.

Compared to its expected forecasts, its financial results were impacted by weaker-than-expected olefins and derivatives product spreads and the operational disruption in Kerteh, Terengganu in the quarter.

Maintaining its “sell” rating, Maybank IB lowered its target price on the counter to RM2.59 from RM3.06 before based on a rolled-over forecast FY26 PER of 15 times from 17.5 times, in line with its five-year mean PER valuation multiples.

Meanwhile, Kenanga Research said polyolefin prices remain weak below US$1,000 per tonne due to the weaker near-term demand outlook, although the recent development in the US-China tariff war meant a relief from a potential severe global economic downturn.

“Urea prices are expected to remain firm as China still restricts exports of fertilisers. As for PPC, we do not expect a swift turnaround in profitability as it is uncertain whether its feedstock supply issue will be solved in the near term,” it said.

“In the near term, demand weakness coupled with oversupply will still plague petrochemical prices, but the bottom could be near given lower recession risks,” it added.

Kenanga Research has maintained its “market perform” rating and cut projected FY25 and FY26 earnings on lower polyolefin price assumptions. The research house raised its target price to RM3.40 from RM3.11, rolling forward its valuation to FY26 forecast price to book value of 0.7 times from 0.6 times on the tariff relief.