Petronas Chemicals Group Bhd (PetChem) is one of Asia’s largest natural gas-based petrochemical producers with a market capitalisation of RM73 billion and a portfolio of over two dozen products made in 17 world-class plants.
Over the past three years, the Petroliam Nasional Bhd-linked counter has outpaced seven other Super Big Cap companies — those with market capitalisation above RM40 billion — in terms of profit growth and shareholders’ returns.
It is commendable how PetChem navigated its way through the low oil price period of 2014 to 2017, which affected the average selling prices (ASP) of petrochemical products.
After a bumpy ride in the financial year ended Dec 31, 2014 (FY2014), as global oil prices more than halved from the US$100 level, PetChem increased its focus on operational excellence to sustain the growth momentum.
The group saw a jump in profit after tax (PAT) margin to 25% in FY2017 from 19% in FY2014 despite a decline in the average market price of its products to US$498 per tonne from US$759 per tonne in the three-year period.
Production volume swelled to a record-high of 10.1 million tonnes last year as plant utilisation grew from 88% in FY2014 to above 90% in FY2016 and FY2017 on better plant reliability and higher feedstock supply.
With support from a stronger US dollar, PetChem’s PAT grew to RM4.18 billion in FY2017 from RM2.47 billion in FY2014, which translates into a three-year compound annual growth rate (CAGR) of 19.22%, well above those of many Super Big Cap companies.
In its annual report, PetChem highlighted economies of scale in its diversified product portfolio as well as proximity to key growth markets, which enabled the group to optimise its inventory management.
It also has an advantage when it comes to fixed feedstock prices, which typically make up half of petrochemical producers’ total production cost.
The outstanding results also boosted PetChem’s market valuation among its
Petronas-linked sister companies by a long shot.
During the The Edge BRC awards evaluation period of end-June 2015 to end-June 2018, PetChem’s share price surged 45.7%, outpacing its sister company Petronas Dagangan Bhd, which soared 32.6%, while Petronas Gas Bhd fell 10.4% and MISC Bhd slipped around 13%. PetChem’s share price gains over the three years were at a CAGR of 13.3%, beating seven other Super Big Cap stocks.
During the period, PetChem manufactured new products and commenced new operations in Gebeng (Pahang), Pengerang (Johor) and Sipitang (Sabah).
Also catalysing its share price was the divestment of 50% in PRPC Polymers Sdn Bhd last year for US$900 million (RM3.8 billion), which further improved its cash position to RM11.4 billion as at end-September this year.
Shareholders enjoyed a dividend payout per share of 18 sen in FY2015, followed by 19 sen in FY2016 and 27 sen in FY2017.
The sterling performance continued with better-than-expected profits in the first three quarters of FY2018.
Full-year plant utilisation average is expected to remain above 90% this year. Further capacity will be added by the second half of FY2019 with the commencement of the isononanol plant within the Pengerang Integrated Complex (PIC) in Johor.
The outlook for PetChem’s operations is largely positive, including better ASP spread, completion of major plant turnaround activities, a sustained low effective tax rate of 10% to 12% and expectations of a resilient US dollar going forward.
There are some risks such as oil price
volatility — Brent crude dipped below US$60 a barrel last month — and emergence of excess capacity in the Middle East and China. However, demand is expected to remain robust.
Overall, Petronas has a long-term vision for the downstream segment with the development of the US$27 billion PIC, which houses the US$16 billion Refinery and Petrochemical Integrated Development (RAPID) project.
PetChem stands to gain from the synergistic opportunities arising from the mega project, with its annual nameplate capacity expected to hit 14.6 million tonnes by 2020 from 12.7 million tonnes as at August this year.
In its 20-year plan, PetChem intends to
aggressively grow its business in speciality chemicals — used in a wide range of products such as tyres and electronics — to 15% of revenue, from 5% currently.