Rising Urbanization In ASEAN Will Fuel Specialty Chemical Demand

Key Takeaways

• Strategic ramp-ups, integration with PETRONAS, and cost advantages are positioning the company for improved profitability and resilience against commodity market volatility.
  
• Expansion into specialty and green chemicals and growing regional demand support outsized earnings growth and sustained multi-year margin improvement.
  
• Slow pivot to specialty and green chemicals, reliance on volatile feedstocks, and rising competition threaten long-term profitability and market position amid weakening demand.

Catalysts

An investment holding company, engages in production and sale of chemicals.

• While analyst consensus expects Pengerang Integrated Complex (PIC) utilization to hover at 60-70% in 2025, the explicit management commentary and recent successful ramp-ups suggest PIC is positioned to achieve above 80% utilization sooner than expected, fast-tracking the transition to profitability and driving a step-change in group revenue and margins.
  
• The prevailing view is that PCG will benefit from higher exposure to Asia and ASEAN demand growth, but with the group's exceptional plant utilization at 91% in 2024 and strategic expansion into India's Sayakha plant, PCG could seize more market share as supply gaps emerge, resulting in outsize topline and earnings growth as regional demand intensifies.
  
• The undiscussed trigger of an imminent special feedstock discount arrangement at PIC, pending the refinery's profitability, could materially lower fixed costs and dramatically expand PIC's margins, providing a potential inflection point for group EBITDA and net margins that is not yet priced into the stock.
  
• The company's integration and close supply chain ties with PETRONAS provide long-term feedstock stability and cost advantages, enabling PCG to outperform competitors during periods of high global commodity volatility, which should underpin consistently high gross margins and de-risk future earnings.
  
• Expansion and investments in new specialty and advanced materials plants, most recently the full acquisition of O2 Chemicals and the inauguration of the Sayakha plant, allow PCG to leverage rising global demand for sustainable, high-value and green chemical products, paving the way for sustained multi-year margin and revenue growth as markets increasingly shift focus to performance and specialty chemicals.

PETRONAS Chemicals Group Berhad Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on PETRONAS Chemicals Group Berhad compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming PETRONAS Chemicals Group Berhad's revenue will grow by 7.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -4.6% today to 7.7% in 3 years time.
• The bullish analysts expect earnings to reach MYR 2.8 billion (and earnings per share of MYR 0.35) by about August 2028, up from MYR -1.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.6x on those 2028 earnings, up from -24.4x today. This future PE is greater than the current PE for the MY Chemicals industry at 13.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.46%, as per the Simply Wall St company report.

PETRONAS Chemicals Group Berhad Future Earnings Per Share Growth

Risks

• The company faces persistent overcapacity and weak pricing in key products like polyethylene, methanol, paraxylene, and benzene due to global expansions and sluggish demand from critical sectors such as construction and automotive, which has already led to negative EBITDA in the Olefins & Derivatives segment and could weigh on future revenue and earnings.
  
• PETRONAS Chemicals' heavy reliance on upstream feedstock supply from PETRONAS, with disruptions at refineries and crackers leading to low utilization rates at the Pengerang complex, exposes the company to ongoing volatility in both feedstock costs and supply security, placing downward pressure on net margins.
  
• Escalating global energy transition, increased regulatory scrutiny on single-use plastics, and the rise of sustainable alternatives threaten long-term demand for the company's core commodity chemicals portfolio, potentially eroding both revenue and long-term earnings.
  
• Intensifying competition from Middle Eastern and Chinese producers equipped with cheaper feedstocks and greater capacity could further compress prices and margins, diminishing the company's competitive position and overall profitability.
  
• Slow progress shifting the product portfolio toward specialty and green chemicals leaves the business exposed to secular declines in demand for traditional petrochemicals, risking structural underperformance in both revenue generation and future earnings if demand trends accelerate.

Valuation

• The assumed bullish price target for PETRONAS Chemicals Group Berhad is MYR4.7, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of PETRONAS Chemicals Group Berhad's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MYR4.7, and the most bearish reporting a price target of just MYR2.18.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be MYR36.3 billion, earnings will come to MYR2.8 billion, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 9.5%.
• Given the current share price of MYR4.18, the bullish analyst price target of MYR4.7 is 11.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.