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Monday, July 22, 2019

Affin Hwang downgrades PChem on softer earnings forecasts

Monday, 22 Jul 20198:54 AM MYT

KUALA LUMPUR: Affin Hwang Capital research expects soft earnings for Petronas Chemicals Bhd in 2Q19 and further weakening in 3Q with a heavy plant turnaround.

The research house house downgraded the counter to a hold from buy with a lower target price of RM8.30 from RM10.10 previously.

"We cut our FY19-20 EPS forecasts by 18% to account for weaker average selling prices for methanol (-15% to US$280/tonne) and PE products (-5% to US$950–1,000/tonne).

"We also slashed our FY21 EPS forecast by 19% mainly to account for weaker long-term PE prices (lower by 25% to US$900/tonne), as a result of rising capacity in China and softer global
demand," it said.

According to Affin Hwang, petrochemical prices have been negatively impacted by the continued uncertainty over the US-China trade war.

It forecasts 2H19 Brent oil to trade in the range of US$65-70 a barrel, which puts a cap on any drastic recovery in product average selling prices.

"Polyethylene (PE) product prices declined by 4% qoq in 2Q19, while that for polypropylene was relatively flat.

"In the fertiliser and methanol (F&M) segment, urea price was up 1% qoq on better SEA demand, but methanol price saw a 3% qoq decline, currently at the year-low of US$259/tonne," it said.

Meanwhile, oVerall 3Q19 plant utilisation is expected to be lower as the cracker plant is shut down for over a month while the polymer and fertiliser plans close for 30 days.


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