PCHEM: Chemicals Sector Faces Significant Headwinds, Reports Net Loss and Reduced Target Price

A major chemicals group has reported a core net loss of RM269.0 million for the fiscal year ended December 25, 2025 (FY25). This performance significantly missed the investment bank’s full-year core net profit forecast of RM52.7 million, though it was narrower than the consensus estimate for a loss of RM420.1 million. The weaker-than-expected results were primarily driven by softer product spreads across its key Olefins & Derivatives (O&D) and Specialties segments, leading to severe margin compression and widened EBITDA losses.

Performance Review

The Olefins & Derivatives (O&D) segment experienced a 12.3% quarter-on-quarter (QoQ) revenue decline, largely due to lower average selling prices (ASP) and a reduced contribution from a key production complex, despite a higher plant utilisation rate of 91.5% in 4QFY25. The EBITDA loss for O&D widened significantly to RM600.0 million from RM110.0 million in the preceding quarter. This deterioration was attributed to persistent weak product spreads, higher unrealised forex losses from the revaluation of payables, and increased repair and maintenance expenses.

Conversely, the Fertilisers and Methanol (F&M) segment showed relative strength, with revenue increasing by 16.0% QoQ. This growth was supported by stronger sales volumes and an improved plant utilisation rate of 97.9% in 4QFY25, following a statutory turnaround at a key fertiliser facility. Consequently, EBITDA for F&M rose by 26.5% QoQ, driven mainly by better product spreads.

Revenue for the Specialties segment fell by 10.7% QoQ due to lower sales volumes. The segment recorded an EBITDA loss of RM31.0 million, a reversal from the RM49.0 million EBITDA reported in the previous quarter. This loss was primarily caused by intense market competition, margin pressure, and customer inventory drawdowns.

Outlook and Challenges

The outlook for the Olefins & Derivatives segment remains challenging. Ethylene prices are expected to stay capped by oversupply in Southeast and Northeast Asia, with weak downstream demand limiting any upside. Monoethylene glycol (MEG) prices are broadly stable, as softer polyester and polyethylene terephthalate (PET) demand is balanced by reduced supply in key regions. Polyethylene finds some support from tight Middle East supply and US cargo delays, though sluggish downstream demand persists. Paraxylene remains balanced, with plant restarts in Northeast Asia offsetting lower operating rates elsewhere, while overall demand continues to stay weak.

For Fertilisers and Methanol, urea prices are anticipated to remain supported by limited supply availability from the Middle East, China, and Southeast Asia, although demand may ease following Indian tenders. Ammonia prices are likely to soften amid lengthening supply and weak demand. Methanol is expected to remain stable, with subdued demand offset by tight supply following planned turnarounds.

The Specialties segment’s outlook remains weak across key end-sectors. While construction activity might stabilise in 1QCY26 due to strength in data centres and public works, Western residential markets are expected to remain pressured. Automotive output is projected to edge lower amid affordability and policy uncertainty, despite China’s export resilience. Consumer spending, though resilient, is cautious, favouring essentials over premium goods.

Analyst’s Recommendation

Following these challenging results and revised earnings projections, the investment bank has significantly lowered its target price (TP) for the company to RM1.82 per share, a sharp reduction from the previous RM3.51 per share. This revised valuation is pegged to 7x CY26 EV/EBITDA, reflecting a substantial discount to the historical 5-year mean, accounting for the current industry downcycle. The firm maintains its “SELL” recommendation, further noting the company’s negative core net loss forecasts for FY26, FY27, and FY28.