PetChem sees healthy growth in 2013, eyes Myanmar, Cambodia

KUALA LUMPUR (Dec 18) : Petronas Chemical Group Bhd (PetChem) said that its top and bottom line growth was going to be in "healthy mode" next year, with prices of its chemical products seen to be firming up.

Speaking at a media briefing on Tuesday, its president and chief executive Dr Abd Hapiz Abdullah said PetChem's growth was also dependent on the state of the global economy, especially in Asia Pacific where most of its products are exported to.

"The petrochemical industry is very dependent on the market. This year the impact of the European crisis had a crippling effect on the economies of China, India and also South East Asia.

"So the outlook next year is going to depend on that, how far the economy in China and India picks up," said Dr Abd Hapiz.

PetChem exported almost 60% of its products overseas, with almost 70% going to South East Asian countries, he said.

With the opening up of Myanmar and the soon ascension of Cambodia into the World Trade Organisation (WTO), Dr Abd Hapiz said PetChem was exploring ways on how the group could participate in these markets, dubbed Asia's last frontier markets.

He said as both Myanmar and Cambodia were largely agricultural countries, there should be an opportunity for PetChem to export its fertilizer chemicals such as urea, ammonia and methanol.

Fertilizer chemicals make up about 30% of PetChem's annual revenue of between RM15 billion to RM16 billion. On the other hand, its olefin and derivatives business make up the larger share of PetChem's annual revenue.

Olefin are used to produce polymer, chemical which is used in the production of plastics and plastic-based products. PetChem is the fourth largest in the world in terms of production capacity of polymer, said Dr Hapiz.

PetChem has been touted to be the vehicle of which Petroliam Nasional Bhd's USD20 billion refinery and petrochemical integrated development (RAPID) project is being built in Pengerang, Johor.

However, Dr Hapiz said, the group was still waiting for the outcome of the final investment decision (FID), before submitting the investment proposals to PetChem's board of directors.

Since early this year, several heads of agreement have been signed between Petronas and international petrochemical companies including Germany's BASF, Japan's Itochu and Thailand's PTT Global Chemical.

The RAPID project will enable Petronas through PetChem to enhance its petrochemical products portfolio through the production of specialty chemicals.

Asked whether the group was still having the appetite to venture outside of the country, Dr Hapiz said it was not at the moment.

This was because apart from the RAPID project, PetChem was also building the US$1.5 billion ammonia and urea plant in Sipitang, Sabah.

"The investments locally that we are doing, we need this to enhance our current portfolio. If based on our current portfolio today, and we go out, competition is also very strong out there. One of our biggest competitors is coming from the Middle East.

"They can really dump their products here with very low price, so you can’t really sustain long term against them. That’s why we are building Rapid so that we can enhance our products offering to our customers," he said.

Share price of PetChem rose 10 sen of 1.64% to RM6.19 as at 3.40 pm with about 3.39 million transactions done. Since hitting year-to-date low of RM5.66 on Dec 3, its share price has rose by 9.2% to today's level.

As at Sept 30, 2012, PetChem recorded net profit of RM2.85 billion, a decrease of 16.4% from RM3.4 billion made in the corresponding period last year.

Maybank Investment Bank has upgraded their call on PetChem to buy from hold with a target price of RM6.50 per share, as it is debt free, has RM1.9 billion in cash and generates free cash flow of more than RM2 billion per annum.

However, PetChem is going to provide for the disposal of its vinyl business for RM580 million in the financial result of the fourth quarter of financial year ending Dec 31, 2012 (4QFY12).

"This will lower its FY12 financial performance on a year-on-year basis. We have filtered this item from our core net income as it is one-off in nature.

"We believe it (PetChem) will retain a flat DPS (dividend per share) of 27 sen in 2012, thus implying a 19 sen per share to be announced in 4QFY12. The stock is attractive based on a stable and reliable dividend yield of 4.7%," Maybank IB stated.

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