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Asia300

Supply shortage seen boosting Petronas Chemicals' earnings

Falling exports from China and Middle East will help

Falling exports from Chinese rivals are expected to support Petronas Chemical's performance, according to analysts. Sinopec's oil tanks at a refining plant in Jiujiang city in China's Jiangxi province.   © AP

KUALA LUMPUR -- Petronas Chemicals Group is expected to report a rise in earnings in 2018, thanks to sustained demand for its chemicals and fertilizers, said two analysts on Wednesday. 

The group, a listed unit of state-owned oil and gas company Petroliam Nasional Berhad, announced Tuesday a net profit growth of 42.5% year-on-year to 4.2 billion ringgit ($1.08 billion) in the year ended Dec. 31, supported by higher sales and prices. Group sales rose 25% to 17.4 billion ringgit.

Nomura said the group's return on equity, a measurement of profitability, will improve to around 15% over the next two years, compared with 11% between 2014 and 2016. A better price outlook for its key products, olefins and derivatives, as well as fertilizers and methanol will generate "solid" cashflow over the period on top of incurring less capital expenditure with the completion of manufacturing facilities, Nomura said. One of the facilities, the Sabah Ammonia Urea, commenced operation in May last year.

Petronas Chemical had said in a stock exchange filing that urea prices will remain strong in 2018 due to healthy demand in Asia and product shortage in the Middle East. Methanol prices are also expected to be sustained by high demand amid tight supply in China.

But Kenanga Research downgraded Petronas stock to "market perform" from "outperform" as the share price had rallied around 10% in the past three months due to seasonally strong petrochemicals prices in the final quarter of the year. The research house, however, raised its stock target price from 8.10 ringgit to 8.40 ringgit. It expects the group's plant utility to be sustained at 90% in 2018, almost at par with 2017.

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