Challenging road ahead seen for PetChem
Analysts covering the company remain cautious despite expectations of operational improvements following a tough second quarter.
While plant utilisation is expected to normalise and losses from joint-venture subsidiary Pengerang Petrochemical Co Sdn Bhd (PPC) could narrow, research houses see the broader petrochemical market outlook as subdued, weighed down by oversupply and weak demand across key markets.
Maybank Investment Bank Research (Maybank IB Research) said the worst was likely over in the second quarter of the year (2Q25) due to company-specific issues such as unplanned downtime in Pengerang Refining Co Sdn Bhd and PPC in Johor and feedstock disruptions at a plant in Kedah.
However, the research house cautioned that PetChem's valuations are rich and lofty at 32 and 21 times estimated earnings for 2025 and 2026, respectively, given the cyclical nature of the industry in a still challenging sector outlook.
'We reiterate our bearish view on the olefins and derivatives subsector due to the ongoing regional oversupply glut, mainly from China,' Maybank IB Research said.
It maintained its 'sell' call on PetChem, with an unchanged target price of RM2.59.
TA Research slashed its 2025 to 2027 earnings forecasts for PetChem by between 35% and 42%, citing weaker O&D spreads, continued foreign exchange headwinds and sustained losses at PPC.
'Persistent oversupply in polyethylene and monoethylene glycol markets and soft downstream demand are expected to keep overall margins under pressure,' the research house said.
TA Research downgraded its recommendation on PetChem to 'sell' from 'hold' and cut its target price for the counter to RM3.51 from RM4.11 previously.
Hong Leong Investment Bank Research (HLIB Research) said PPC's utilisation rate has reached about 80% to 90% since commencing its creditor reliability test on June 26, with losses narrowing slightly quarter-on-quarter.
However, it said: 'We expect PPC to remain loss making due to subdued product prices amid persistent regional oversupply, weak downstream demand across key end markets, and sustained margin compression from unfavourable paraxylene–naphtha spreads.'
The speciality-chemicals segment is also expected to be weighed down by weak residential construction demand, rising costs and oversupply, with further impairments possible if market conditions remain soft.
HLIB Research reiterated 'sell' call on PetChem, with a lower target price of RM2.18, compared with RM2.50 previously.
CIMB Research trimmed its 2025 to 2027 earnings estimates for PetChem by up to 11.8% following weaker-than-expected results from operational disruptions and extended downtime.
'We anticipate a material recovery in 2H25, supported by the normalisation of operations and the absence of major unplanned outages,' it said, expecting PPC's losses to narrow.
The group is awaiting regulatory approval to defer the turnaround of its second cracker in Kertih to 2Q26, which could optimise output later this year. Nonetheless, the research house flagged that subdued global demand and new US tariffs may further dampen sentiment in export markets.
CIMB Research kept its 'hold' rating on PetChem, but cut its target price to RM3.45 from RM3.53.
Meanwhile, Kenanga Research reduced its 2025 to 2026 earnings forecasts by 75.3% and 40.1%, respectively, driven by larger speciality-segment losses and lower fertilisers and methanol plant utilisation.
While noting signs of bottoming polyolefin prices and PetChem's strong balance sheet, it said PPC's ramp-up is still a concern due to feedstock supply disruption, and polyolefin price recovery remains uncertain.
Kenanga Research trimmed its target price for PetChem to RM3.36 from RM3.40, while maintaining its 'market perform' call on the counter.
PetChem posted a net loss of RM1.08bil in 2Q25 compared with a RM777mil profit a year earlier, as revenue fell 16% year-on-year to RM6.44bil. In the first half, it recorded a net loss of RM1.1bil against a RM1.45bil profit in the same period last year.
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