CEO Morning Brief

PetChem's 1Q Net Profit Down 74% as Product Prices Fall, Operating Costs Rise

Publish date: Tue, 30 May 2023, 08:40 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (May 29): A decline in average product prices, coupled with higher utility and fuel costs, dragged Petronas Chemicals Group Bhd's (PetChem) net profit for the first quarter ended March 31, 2023 (1QFY2023) down 74.37% to RM532 million, from RM2.08 billion a year ago.

Earnings per share fell to seven sen, compared with 26 sen previously, according to the group in a bourse filing on Monday (May 29).

This was despite a 13.91% rise in quarterly revenue to RM7.56 billion versus RM6.63 billion for 1QFY2022, on the back of the olefins and derivatives segment's higher sales amid the ringgit's weakening versus the US dollar.

The olefins and derivatives segment’s revenue rose by 23.7% to RM3.39 billion from RM2.74 billion previously, while the specialities segment’s top line leapt over threefold to RM1.75 billion versus RM578 million a year prior, thanks to the inclusion of contributions from a recently acquired subsidiary.

Meanwhile, PetChem’s fertilisers and methanol segment posted a 27.15% drop in revenue to RM2.41 billion, compared with RM3.3 billion previously, due to lower product prices partially offset by the weakening local note against the greenback.

In terms of earnings, PetChem’s olefins and derivatives segment posted a 76.81% drop in profit after tax (PAT) to RM170 million from RM733 million previously, largely due to lower product spreads, higher energy and utilities costs as well as pre-operation costs from a joint operating company.

The fertilisers and methanol segment’s net profit shrank over half to RM533 million, compared with RM1.17 billion a year earlier, due to compressed margins. The specialties segment posted a loss after tax of RM29 million, versus a PAT of RM163 million previously, due to lower demand and compressed margins.

Touching on its prospects for FY2023, PetChem said its operations are expected to be primarily influenced by global economic conditions, petrochemical product prices, utilisation rates of production facilities, and foreign exchange movements.

“The group anticipates product prices for olefins and derivatives to soften, following demand uncertainty amid global inflationary pressures. Fertiliser and methanol product prices are expected to stabilise, supported by improving demand,” PetChem said.

“For specialties, the group expects modest demand recovery as restocking activities have been observed, but the persistent global inflationary environment and a slowdown in certain end markets may pose headwinds on pricing,” the group added.

In a separate statement, PetChem managing director and chief executive officer Mohd Yusri Mohamed Yusof noted that in the long term, the chemical industry is expected to continue its growth trajectory of about 3% per annum, driven by rising consumption in a wide number of expanding industries, including pharmaceuticals, automotive and construction.

He added that PetChem had mapped out its sustainable growth plan for both basic and specialty chemical value chains to capture future demand.

At the noon break on Monday, shares in PetChem stood at RM6.95, giving the group a market capitalisation of RM55.6 billion.

Source: TheEdge - 30 May 2023

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