Deep Dive into Listed Companies
Petronas Chemicals Group Berhad (PCHEM)
Recommendation: SELL
PCHEM faces substantial pressure due to weak polymer prices and an anticipated YoY profit decline in FY25. The company is burdened by its 50% share of PPC’s MYR700 million annual operating losses, driven by interest and depreciation costs. Moreover, PPC’s reliance on naphtha as a feedstock introduces earnings volatility compared to PCHEM’s traditional ethane-based polymers. Trading at a lofty >22x FY25E EPS, PCHEM’s valuation is pegged to a PER of 17.5x, with a target price of MYR3.82.
MISC Berhad
Recommendation: HOLD
MISC, a key player in LNG shipping and petroleum tankers, has a target price of MYR8.09, offering an 11% upside. The company is expected to benefit from stable midstream earnings but faces challenges in sustaining growth momentum amidst industry headwinds.
Dialog Group Berhad
Recommendation: BUY
Dialog shines in the midstream segment, with 60% of earnings derived from long-term “take-or-pay” tank terminal assets. The company is positioned to benefit from ChemOne’s PEC development and PETRONAS’s biorefinery projects. Dialog’s earnings are forecasted to reach a record MYR714 million (+17% YoY) in FY25. The target price is set at MYR2.97, reflecting a 61% upside.
Yinson Holdings Berhad
Recommendation: BUY
Yinson is a standout in the FPSO sector, poised to benefit from a golden age in FPSO demand. With a robust pipeline of global FPSO awards projected, Yinson is expected to capitalize on deepwater and ultra-deepwater capex investments. The target price for Yinson is MYR4.78, offering a compelling 78% upside.
Bumi Armada Berhad
Recommendation: BUY
Bumi Armada’s balance sheet has significantly improved, with net debt reduced to MYR2.9 billion as of September 2024. Positioned as a strong contender in the FPSO market, the company is likely to secure new contracts in collaboration with strategic partners. Its target price is MYR0.71, reflecting a 7% upside.
Lotte Chemical Titan Holding Berhad (LCTITAN)
Recommendation: SELL
LCTITAN struggles with unprofitable PE-naphtha spreads (-USD300-350/MT). The company faces a dual challenge of weak polymer prices and high naphtha costs, making profitability elusive. The target price is MYR0.91, based on a FY25E PBV multiple of 0.15x.
Velesto Energy Berhad
Recommendation: BUY
Velesto, a drilling rig provider, is vulnerable to potential PETRONAS capex cuts. However, it remains a beneficiary of upstream activities. The target price is revised to MYR0.20, reflecting a 28% upside.
Wasco Berhad
Recommendation: BUY
Wasco is positioned to benefit from pipeline services demand. Despite potential headwinds, it retains a target price of MYR1.47, representing a 28% upside.
Icon Offshore Berhad
Recommendation: HOLD
Icon Offshore, an OSV provider, could face challenges from reduced exploration and production activities. The target price is MYR1.00, with minimal upside expected.
Key Themes and Sector Outlook
Golden Age for FPSO
The FPSO market is set to thrive, with Rystad Energy projecting 60 awards between 2024-2028. Key beneficiaries include Yinson, Bumi Armada, and MISC. The deepwater and ultra-deepwater segments are expected to drive growth, with FPSOs being the preferred solution for such environments.
Petrochemicals Under Pressure
The petrochemical sector faces an L-shaped recovery, with ASPs expected to remain weak due to oversupply. Both PCHEM and LCTITAN are forecasted to endure challenging years, negatively impacting their profitability.
PETRONAS Capex Cuts and Impact
The transition of gas aggregator responsibilities to PETROS could lead to PETRONAS reducing its capex. This scenario may adversely affect OGSE players like Velesto, Dayang Enterprise, and others involved in upstream exploration and development activities.
