Kuala Lumpur: CIMB Securities Sdn Bhd has downgraded its recommendation for Petronas Chemicals Group Bhd (PChem) to a "Hold" from "Buy".
According to BERNAMA News Agency, 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 2025 to 2027.
The downgrade was influenced by an unplanned shutdown at PChem's high-margin Kertih cracker, prolonged downtime at the Pengerang Petrochemical Complex (PPC) due to feedstock disruptions from Pengerang Refining Company (PRC), and risks related to potential United States tariffs. These factors prompted CIMB to lower its sum-of-parts (SOP)-based target price to RM3.53. The firm expressed concerns that global trade uncertainties and persistent structural issues at the PRC might continue to impact earnings.
CIMB Securities highlighted that a recent meeting with PChem revealed another unplanned downtime at the Kertih plant, following a previous shutdown in January due to utility disruptions from Petronas Gas. The current issue, ongoing since April, is expected to be resolved by end-May, after approximately 25 days.
The firm anticipates weaker earnings for the olefins and derivatives (O and D) segment in the second quarter of 2025. Although overall plant utilisation may remain near 90 per cent, the costs associated with repairs, lost production, and increased reliance on strategic sourcing are expected to pressure margins and affect earnings.
Despite these challenges, CIMB expects the O and D segment, excluding PPC, to remain profitable, with adjusted EBITDA of RM100 million in the second quarter of 2025, compared to RM80 million in the first quarter of 2025. Additionally, PChem is in talks with the Department of Occupational Safety and Health to postpone the planned turnaround of its second Kertih cracker from the fourth quarter of 2025 to the first quarter of 2026.
CIMB Securities projects that PPC's losses could widen significantly, forecasting 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. The firm's earnings forecast for FY 2025 assumes no special feedstock discount, given the uncertain industry outlook and ongoing structural issues at PRC. However, a special feedstock discount is anticipated from FY 2026, supported by an expected industry recovery.
Although PChem has minimal direct exposure to US tariffs, CIMB Securities warned of potential indirect impacts on earnings. The company indicated cautiousness regarding possible indirect effects of broader macroeconomic spillovers from US trade policy, which could weaken petrochemical demand and exacerbate the weakness in average selling prices.
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, PChem shares were up three sen to RM3.48.
