Petronas Chemicals (PCHEM MK): Earnings Risks Persist; Maintain SELL
Energy & Petrochemicals | Downstream Products
- Maintain SELL and MYR3.22 TP, 11% downside. 1H25 results missed expectations once again on the continued earnings drag from the Pengerang Petrochemical Complex (PPC), and lower product spreads and sales volumes. We have pencilled in earnings recovery in 2H25 on higher PPC utilisation, but earnings risks remain our biggest concern. Despite optimism over China’s anti-involution policy, which could potentially improve the supply dynamic over the long term, we remain cautious – we believe any prices recovery could be pressured by continuous capacity additions.
- Missed expectations. Petronas Chemical’s 1H25 core earnings of MYR4m came in below expectations, mainly dragged by a weaker-than-expected PPC performance, and lacklustre olefin & derivatives (O&D) and specialties divisions. A first interim DPS of 3 sen was declared (2Q24: 10 sen).
- PCHEM recorded a core loss of MYR83m in 2Q25 (1Q25: MYR79m core profit, 2Q24: MYR445m core profit) after stripping off MYR431m in PPE impairment, MYR121m inventory write-offs, and MYR446m in FX losses. The poorer performance was dragged by lower plant utilisation of 77% (1Q25: 94%, 2Q24: 89%) due to feedstock supply disruption at Petronas Chemicals Fertiliser Kedah, and higher plant repair and maintenance activities plus lower product spreads. Cumulatively, PCHEM was in the red with 6M24 core losses of MYR4m (6M25: MYR901m core profit) on the abovementioned reasons – further marred by higher losses from the PPC post full recognition of depreciation charges and finance costs since 2H24.
- Outlook. PCHEM recognised its first asset impairment on Perstorp since its acquisition in 2022, and we do not discount the possibility of further impairments if the specialities markets remain subdued. Global petrochemical outlook remains uncertain despite optimism over China’s anti-involution policy, which could potentially improve the supply dynamic over the long term. That said, we remain cautious, as we deem any prices recovery could be pressured by continuous capacity additions. The reliability test for the entire Pengerang Integrated Complex (PIC) including the cracker, PPC, and other facilities have started. Notably, PPC has achieved utilisation of 80-90%, and further feedstock discounts will only be given when the entire PIC achieves certain profitability. The melamine and isononanol projects achieved ready-for-start-up or RFSU and commercial operations date or CODs at end July and mid-August this year.
- We cut FY25F-27F earnings by 45%, 15%, and 10% on weaker spreads. Our TP remains unchanged at MYR3.22, pegged to 0.7x FY26F P/BV (below -2SD from its 5-year mean) – it also incorporates a 4% discount based on PCHEM’s 2.8 ESG score vs the 3.0 country median. This is in line with average regional peers’ valuation.
Forecasts and Valuation
| Forecasts and Valuation | Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Total turnover (MYRm) | 28,667 | 30,671 | 30,605 | 31,523 | 32,415 |
| Recurring net profit (MYRm) | 1,693 | 1,108 | 695 | 1,383 | 1,540 |
| Recurring net profit growth (%) | (73.9) | (34.6) | (37.3) | 99.1 | 11.3 |
| Recurring P/E (x) | 17.01 | 25.99 | 41.45 | 20.82 | 18.70 |
| P/B (x) | 0.7 | 0.7 | 0.7 | 0.7 | 0.7 |
| P/CF (x) | 5.63 | 6.23 | 7.63 | 7.21 | 6.86 |
| Dividend Yield (%) | 3.6 | 3.6 | 2.1 | 4.3 | 4.7 |
| EV/EBITDA (x) | 5.53 | 5.16 | 6.03 | 4.99 | 4.86 |
| Return on average equity (%) | 4.3 | 3.0 | 1.8 | 3.6 | 4.0 |
| Net debt to equity (%) | net cash | net cash | net cash | net cash | net cash |
Overall ESG Score: 2.8 (out of 4)
E Score: 2.0 (MODERATE)
S Score: 3.3 (EXCELLENT)
G Score: 4.0 (EXCELLENT)
Please refer to the ESG analysis on the next page
Source: Company data, RHB
Emissions And ESG
Trend analysis
In 2024, the group’s total greenhouse gas or GHG emissions, encompassing Scope 3, increased by 9.3% to 25.75 mtCO2e.
Emissions (tCO2e)
| Emissions (tCO2e) | Dec-22 | Dec-23 | Dec-24 | Dec-25 |
|---|---|---|---|---|
| Scope 1 | 6,470,000 | 6,400,000 | 6,690,000 | na |
| Scope 2 | 1,550,000 | 1,500,000 | 1,430,000 | na |
| Scope 3 | 15,650,000 | 15,660,000 | 17,630,000 | na |
| Total emissions | 23,670,000 | 23,560,000 | 25,750,000 | na |
Source: Company data, RHB
Latest ESG-Related Developments
PCHEM’s Perstorp launched a facility in Sweden that further purifies wastewater from the municipal water treatment plant to be reused for cooling at the Perstorp Oxo production plant.
The group successfully inaugurated its International Sustainability & Carbon Certification (ISCC) PLUS-certified plant in Bharuch, India, which utilises renewably sourced raw materials and hybrid electricity.
ESG Unbundled
Overall ESG Score: 2.8 (out of 4)
Last Updated: 30 June 2025
E Score: 2.0 (MODERATE)
To achieve its net zero carbon emissions (NZCE) target by 2050, the group has established a dedicated task force to support the implementation of its NZCE Roadmap. Additionally, PCHEM has set an interim target of reducing GHG emissions by 20% by 2030. However, in 2024, the group’s total GHG emissions increased by 9.3% to 25.75 mtCO2e.
S Score: 3.3 (EXCELLENT)
PCHEM is committed to achieving high standards of HSE performance, striving towards the goals of zero fatalities, zero major loss of primary containment (LOPC) and zero major fires. However, in 2024, it recorded one fatality and its lost time injury frequency (number of LTIs per million man hours) increased by 78% to 0.16 from 0.09.
G Score: 4.0 (EXCELLENT)
Board characteristics are in line with Bursa Malaysia and Malaysian Code on Corporate Governance requirements, with independence of the board maintained, directors being skilled and experienced and 33% female representation. Transparency and disclosure of information are at an adequate level, which allows stakeholders to make fair assessments on the firm. Shareholder rights are also well protected.
Financial Exhibits
Key drivers
i. Stronger petrochemical price;
ii. Expansion into specialty chemicals.
Key risks
i. Weaker petrochemical prices;
ii. Delay in PIC commercialisation.
Company Profile
PCHEM offers a diversified range of petrochemical product such as olefins, polymers, fertilisers, methanol, etc.
Financial summary (MYR)
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Recurring EPS | 0.21 | 0.14 | 0.09 | 0.17 | 0.19 |
| DPS | 0.13 | 0.13 | 0.08 | 0.15 | 0.17 |
| BVPS | 5.05 | 4.82 | 4.83 | 4.85 | 4.87 |
| Return on average equity (%) | 4.3 | 3.0 | 1.8 | 3.6 | 4.0 |
Valuation metrics
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Recurring P/E (x) | 17.01 | 25.99 | 41.45 | 20.82 | 18.70 |
| P/B (x) | 0.7 | 0.7 | 0.7 | 0.7 | 0.7 |
| FCF Yield (%) | 9.6 | 7.5 | 3.1 | 3.3 | 3.5 |
| Dividend Yield (%) | 3.6 | 3.6 | 2.1 | 4.3 | 4.7 |
| EV/EBITDA (x) | 5.53 | 5.16 | 6.03 | 4.99 | 4.86 |
| EV/EBIT (x) | 10.61 | 10.90 | 17.46 | 10.96 | 10.37 |
Income statement (MYRm)
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Total turnover | 28,667 | 30,671 | 30,605 | 31,523 | 32,415 |
| Gross profit | 8,390 | 4,706 | 4,150 | 4,644 | 4,871 |
| EBITDA | 4,134 | 4,345 | 3,691 | 4,525 | 4,736 |
| Depreciation and amortisation | (1,978) | (2,288) | (2,417) | (2,464) | (2,519) |
| Operating profit | 2,156 | 2,057 | 1,274 | 2,061 | 2,218 |
| Net interest | (139) | (260) | (356) | (338) | (319) |
| Pre-tax profit | 2,110 | 1,690 | 822 | 1,636 | 1,821 |
| Taxation | (360) | (401) | (123) | (245) | (273) |
| Reported net profit | 1,696 | 1,175 | 695 | 1,383 | 1,540 |
| Recurring net profit | 1,693 | 1,108 | 695 | 1,383 | 1,540 |
Cash flow (MYRm)
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Change in working capital | 1,588 | 845 | 562 | 55 | 53 |
| Cash flow from operations | 5,119 | 4,626 | 3,774 | 3,996 | 4,198 |
| Capex | (2,352) | (2,452) | (2,894) | (3,039) | (3,191) |
| Cash flow from investing activities | (2,570) | (2,380) | (2,894) | (3,039) | (3,191) |
| Dividends paid | (1,236) | (772) | (615) | (1,224) | (1,363) |
| Cash flow from financing activities | (2,175) | 2,945 | (446) | (1,419) | (1,577) |
| Cash at beginning of period | 8,888 | 9,268 | 9,931 | 10,365 | 9,903 |
| Net change in cash | 374 | 5,191 | 434 | (462) | (570) |
| Ending balance cash | 9,268 | 9,926 | 10,365 | 9,903 | 9,333 |
Balance sheet (MYRm)
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Total cash and equivalents | 9,268 | 9,931 | 10,365 | 9,903 | 9,333 |
| Tangible fixed assets | 22,041 | 21,900 | 22,376 | 22,951 | 23,623 |
| Total investments | 1,805 | 1,442 | 1,346 | 1,259 | 1,181 |
| Total assets | 60,206 | 60,020 | 60,250 | 60,523 | 60,786 |
| Short-term debt | 500 | 795 | 0 | 0 | 0 |
| Total long-term debt | 2,473 | 2,419 | 3,383 | 3,188 | 2,974 |
| Total liabilities | 18,132 | 20,041 | 20,188 | 20,295 | 20,373 |
| Total equity | 42,074 | 39,979 | 40,062 | 40,228 | 40,413 |
| Total liabilities & equity | 60,206 | 60,020 | 60,250 | 60,523 | 60,786 |
Key metrics
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Revenue growth (%) | (1.0) | 7.0 | (0.2) | 3.0 | 2.8 |
| Recurrent EPS growth (%) | (73.9) | (34.6) | (37.3) | 99.1 | 11.3 |
| Gross margin (%) | 29.3 | 15.3 | 13.6 | 14.7 | 15.0 |
| Operating EBITDA margin (%) | 14.4 | 14.2 | 12.1 | 14.4 | 14.6 |
| Net profit margin (%) | 5.9 | 3.8 | 2.3 | 4.4 | 4.8 |
| Dividend payout ratio (%) | 61.3 | 88.5 | 88.5 | 88.5 | 88.5 |
| Capex/sales (%) | 8.2 | 8.0 | 9.5 | 9.6 | 9.8 |
| Interest cover (x) | 15.5 | 7.9 | 3.6 | 6.1 | 7.0 |
Source: Company data, RHB
Figure 1: Results review
| FYE Dec (MYRm) | 2Q24 | 1Q25 | 2Q25 | QoQ (%) | YoY (%) | 6M24 | 6M25 | YoY (%) | Comment |
|---|---|---|---|---|---|---|---|---|---|
| Turnover | 7,728 | 7,656 | 6,437 | (16%) | (17%) | 1,5227 | 14,093 | (7%) | 2Q25 core profit derived after stripping off a MYR431 PPE impairment, MYR121m inventories write off and MYR446 FX losses. |
| EBITDA | 1,110 | 892 | 395 | (56%) | (64%) | 2270 | 1287 | (43%) | |
| Depreciation | (529) | (611) | (608) | (0%) | 15% | (1,061) | (1,219) | 15% | |
| EBIT | 487 | 78 | (1,185) | (1,619%) | (343%) | 936 | (1,107) | (218%) | |
| Interest expense | (30) | (88) | (88) | 0% | 193% | (73) | (176) | 141% | |
| Associates | (66) | (28) | (27) | (4%) | (59%) | (65) | (55) | (15%) | |
| Pre-tax profit | 940 | 87 | (1,048) | (1,305%) | (211%) | 1,745 | (961) | (155%) | |
| Taxation | (131) | (69) | 1 | (101%) | (101%) | (233) | (68) | (71%) | |
| Profit after tax | 809 | 18 | (1,047) | (5,917%) | (229%) | 1,512 | (1,029) | (168%) | |
| Minority interest | (32) | (36) | (34) | (6%) | 6% | (67) | (70) | 4% | |
| Net profit | 777 | (18) | (1,081) | 5,906% | (239%) | 1,445 | (1099) | (176%) | |
| Core net profit | 445 | 79 | (83) | (205%) | (119%) | 901 | (4) | (100%) | |
| EPS (sen) | 5.6 | 1.0 | (1.0) | (205%) | (119%) | 11.3 | (0.1) | (100%) | |
| EBITDA margin | 14% | 12% | 6% | 15% | 9% | ||||
| EBIT margin | 6% | 1% | -18% | 6% | -8% | ||||
| Pre-tax margin | 12% | 1% | -16% | 11% | -7% | ||||
| Core PATAMI margins | 6% | 1% | -1% | 6% | 0% |
Source: Company data, RHB
Figure 2: Breakdown of 2Q25 performance by segment
| FYE Dec (MYRm) | 2Q24 | 1Q25 | 2Q25 | QoQ (%) | YoY (%) | 6M24 | 6M25 | YoY (%) |
|---|---|---|---|---|---|---|---|---|
| Turnover | ||||||||
| Olefins & derivatives | 3768 | 3513 | 2645 | (25%) | (30%) | 7513 | 6158 | (18%) |
| Fertilisers & methanol | 2126 | 2498 | 2263 | (9%) | 6% | 4120 | 4761 | 16% |
| Specialties | 1819 | 1632 | 1819 | 11% | 0% | 3561 | 3451 | (3%) |
| Group turnover | 7713 | 7643 | 6727 | (12%) | (13%) | 15194 | 14370 | (5%) |
| Segmental EBITDA | ||||||||
| Olefins & derivatives | 330 | (43) | (251) | 484% | (176%) | 728 | (294) | (140%) |
| Fertilisers & methanol | 720 | 892 | 556 | (38%) | (23%) | 1440 | 1448 | 1% |
| Specialties | 60 | 43 | 90 | 109% | 50% | 102 | 133 | 30% |
| Group EBITDA | 1110 | 892 | 395 | (56%) | (64%) | 2270 | 1287 | (43%) |
| EBITDA margin | ||||||||
| Olefins & derivatives | 9% | -1% | -9% | 10% | -5% | |||
| Fertilisers & methanol | 34% | 36% | 25% | 35% | 30% | |||
| Group EBITDA margin | 3% | 3% | 5% | 3% | 4% | |||
Source: Company data, RHB
Recommendation History
| Date | Recommendation | Target Price | Price |
|---|---|---|---|
| 2025-05-20 | Sell | 3.2 | 3.7 |
| 2025-03-28 | Sell | 3.2 | 3.6 |
| 2023-05-30 | Sell | 6.0 | 6.8 |
| 2023-05-09 | Neutral | 6.9 | 7.2 |
| 2023-03-29 | Neutral | 7.3 | 6.9 |
| 2023-02-23 | Neutral | 8.2 | 7.8 |
| 2022-11-28 | Neutral | 9.3 | 9.1 |
| 2022-08-22 | Neutral | 9.3 | 8.7 |
| 2022-05-08 | Buy | 12.2 | 10.2 |
| 2022-02-25 | Buy | 10.9 | 9.3 |
| 2021-11-22 | Buy | 9.9 | 8.3 |
| 2021-10-05 | Buy | 9.9 | 8.7 |
| 2021-08-26 | Buy | 9.1 | 8.2 |
| 2021-05-27 | Buy | 9.1 | 8.2 |
| 2021-02-24 | Buy | 8.3 | 7.7 |
Source: RHB, Bloomberg
RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
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