PChem - positive impact on US Dollar

The strengthening of the US dollar would have a positive impact on the company’s earnings.

PChem derives 58%-59% of its revenue from overseas while its domestic product prices are typically referenced to intl benchmarks, which are quoted in US dollar.

Estimated for every 1% appreciation in US dollars against the ringgit PChem’s earnings will be enhanced by 1.5%.

It has many great attributes – it is free of debt, has rn10.7 billion of cash in is coffers and generates a free cash flow of more than rm2 billion per annum.

However its growth prospect is limited as there is no new capacity up to 2015 and any growth is premised on higher ASPs which is expected to be flat in the near term.

Moreover with Petronas expects to push back the commissioning of its US$20bil Rapid project in Johor by nine months to Jan 2018. The project was to commence operations by March 2017, which in itself was already a delay given that the Rapid project was originally scheduled to kick off in March 2016.

This newsflow will generate some negative sentiment … for O&G companies that are potentially leveraged to this project are: (i) Dialog (tank terminal operations, regasification plant); (ii) KNM Group Bhd, MMHE, Muhibbah Engineering Bhd, SAKP (onshore fabrication works and process equipment); (iii) Gas Malaysia and Petronas Gas (natural gas transmission, additional volume); and (iv) Petronas Chemicals Bhd (petrochemicals).