CIMB downgrades PChem to Hold, cuts target price to RM3.53
CIMB Securities also reduced its target price for PChem to RM3.53 from RM4.41, following a 13 to 26 per cent cut in its earnings forecasts for the financial years (FY) 2025 to 2027.
In a research note today, the brokerage said the downgrade was driven by an unplanned shutdown at PChem's high-margin Kertih cracker, prolonged downtime at Pengerang Petrochemical Complex (PPC) due to feedstock disruptions from Pengerang Refining Company (PRC), and rising risks linked to potential United States (US) tariffs.
'This led us to lower our sum-of-parts (SOP)-based target price to RM3.53 from RM4.41. We downgrade PChem as global trade uncertainties and persistent structural issues at the PRC could continue to weigh on earnings,' the firm said.
CIMB Securities noted that its recent meeting with PChem revealed another unplanned downtime at the Kertih plant, with the first cracker taken offline due to vessel wall wear and tear at one of the units.
This marks the second shutdown at Kertih this year, following a 20-day stoppage in January caused by utility disruptions from Petronas Gas. The current issue, ongoing since April, is being resolved, and operations are expected to resume by end-May after approximately 25 days.
'As a result, we anticipate weaker earnings for the olefins and derivatives (O&D) segment in the second quarter (2Q) 2025,' it said.
Although overall plant utilisation may remain near 90 per cent, the cost of repairs, lost production from the high-margin cracker, and increased reliance on strategic sourcing are expected to pressure margins and weigh on 2Q 2025 earnings.
'Nonetheless, we expect the O&D segment (excluding PPC) to remain profitable, with adjusted earnings before interest and other finance income (EBITDA), excluding forex impact, of RM100 million in the 2Q 2025, compared to RM80 million in the 1Q 2025,' the firm said.
On a positive note, PChem is in discussions with the Department of Occupational Safety and Health to postpone the planned turnaround of its second Kertih cracker from 4Q 2025 to 1Q 2026. If approved, this could enable Kertih to optimise production in 4Q 2025, it said.
CIMB Securities estimates that PPC's losses could widen significantly, projecting a group-level loss before interest and other finance income (LBITDA) of RM536.1 million in FY 2025, up from RM320 million in FY 2024.
'Our FY2025 earnings forecast for PChem currently assumes no special feedstock discount, given the uncertain industry outlook and ongoing structural issues at PRC that continue to constrain PPC's profitability.
'That said, we anticipate PPC could secure a special feedstock discount from FY 2026, supported by an expected industry recovery driven by firmer demand, slower capacity additions, and improved pricing dynamics,' the firm said.
Although PChem has minimal direct exposure to US tariffs—selling less than two per cent of its volume to the US—CIMB Securities warned of potential indirect impacts on earnings.
'PChem indicated a cautious view on possible indirect effects of broader macroeconomic spillovers from US trade policy, which could further weaken petrochemical demand and exacerbate the ongoing weakness in average selling prices.
'Additionally, such developments may increase input and logistics costs for manufacturers globally, potentially squeezing margins and slowing the pace of recovery across the sector,' it said.
Nonetheless, CIMB pointed out several upside risks, including potential feedstock discounts at PPC, recovery in product spreads, and earnings rebound at its European unit, Perstorp.
At lunch break today, PChem shares were up three sen to RM3.48.
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