MIDF Research raises Petronas Chemicals target price

PETALING JAYA: MIDF Research has maintained its “buy” recommendation on Petronas Chemicals Group Bhd (PChem) with a higher target price of RM8.72 from RM8.18 previously after it posted a 20% earnings growth in FY17.
“Our target price is derived from price-to-earnings (PER) ratio of 16 times pegged to earnings per share (EPS) of 54.5sen. We revised our target PER from 15 times to 16 times, reflecting PChem’s average PER over two years,” it said in a note today.
MIDF Research said the group’s FY17 earnings of RM4.2 billion came in within its estimates, accounting for 101.1% of its FY17 earnings forecasts, but exceeded consensus estimates by a variance of more than 6.5%.
Its overall net profit margin expanded by 2.8 percentage points to 24%.
Moving forward, MIDF Research said the group’s olefins and derivatives (O&D) segment is expected to sustain its upbeat momentum owing to limited product supply, regional turnarounds, healthy demand and higher feedstock prices.
It said the fertilisers and methanol segment is also expected to coast on an uptrend.
This is due fertiliser supply from the Middle East expected to be limited due to strong demand in Asia, a healthy downstream demand and tight supply of methanol in China.
“As the product prices are expecting to remain stable and firm in the near term coupled with stronger plant utilisation rate (PUR) moving forward, we remain sanguine on the company whilst expecting FY18 to perform on par or exceed that of FY17,” it added.
Meanwhile, MIDF Research said the group’s management guided that FY18 will be another year with heavy turnaround activities.