Petrochemical down cycle weighs on PetChem

PETALING JAYA: Analysts remain cautious about PETRONAS Chemicals Group Bhd’s (PetChem) prospects due to the the group’s dismal results for the third quarter of this year (3Q25), with sustained losses in the olefins and derivatives (O&D) segment and higher joint venture (JV) losses.

In a note to clients, Maybank Investment Bank Research (Maybank IB Research) said PetChem’s 3Q25 was the worst since its 2010 listing, significantly falling short of expectations.

“We now project a core net loss of RM378mil for this year (FY25) from net profit of RM900mil.

“We also cut our core net profit forecasts by 55% and 58% for FY26 and FY27, respectively, to reflect lower olefin price assumptions and weaker expected earnings before income tax, depreciation and amortisation (Ebitda) margins,” the research house said.

It also said PetChem’s quarterly earnings have become increasingly volatile since the consolidation of its subsidiary Pengerang Petrochemical Co Sdn Bhd’s (PPC) operations in FY24 as PPC is a loss-making naphtha-based petrochemical complex, rendering the price-earnings ratio (PER) valuation method less meaningful.

“As we believe the petrochemical downcycle has not troughed, earnings volatility could ensue for the foreseeable future,” Maybank IB Research added.

Given the heightened earnings volatility, the research house is switching its valuation method to price-to-book value from PER.

It maintained a “sell” call on the stock with a new target price RM2.38 per share.

Meanwhile, Kenanga Research said it expects PetChem’s near-term earnings outlook to remain weak as polyolefin prices remain depressed.

However, it still believes that China’s “anti-involution” policy would restore more balance to the oversupplied polyolefins markets, but admittedly this could take a while to take effect.

As such, Kenanga Research said it cut its FY25 forecast for PetChem to a loss of RM484mil from RM316.3mil and assumed weaker spreads from PCC as well as higher joint-venture losses.

In terms of valuation, it cut PetChem’s target price by 11% to RM4.70 from RM5.30 in view of potential impairment for PPC in the coming quarters after a major impairment expensed in 2Q25 for the group’s speciality division.

“While the near-term outlook remains bleak, we believe that the recent sharp downturn in PetChem’s share price has fully priced in the weakness and the stock still has a chance reach a recovery in FY26,” it noted.

Kenanga Research said: “We stick to our view that although the impact could be delayed, China’s supply-related reduction in FY26 that could potentially lift product prices further.”

The research house continues to like PetChem due to signs of a bottoming in polyolefin prices as the global business cycle bottoms, the speciality chemicals division potentially seeing trough earnings in FY25 followed by a year of expected gradual recovery, and its superior margins versus its peers due to a favourable cost structure.

The risks include worse-than-expected economic growth globally leading to weaker petrochemical prices, Pengerang Integrated Complex costs exceeding estimates due to operational issues, and worse-than-expected oversupply in speciality chemicals particularly in the European region.

While PetChem recorded losses in its 3Q25 results, MBSB Research said there has been improvement in some of its business segments.

“We view that the current share price already reflects the downside risks for PetChem,” it added.

While the overall outlook for the petrochemical industry appears bearish, there has been a quarter-on-quarter recovery in the O&D and specialities segments, particularly comparing 3Q25 with 2Q25.

Additionally, the stock price has fallen by 37% year-to-date, leading the research house to believe that the weakness is already reflected in the current pricing.

MBSB Research has upgraded PetChem to a “neutral” call from a “sell” with an unchanged target price of RM3.01.