Friday, November 5, 2010

Petronas Chemicals Group Bhd - Part 1

Last few weeks quite busy with one stuff, Petronas Chemicals Group Bhd (PChem), I went to visit one of their factory located at Gurun. It's huge (about 1km x 1km, see picture) and nice place, the guard ask for the I.C. to exchange with a entry pass. There are 4 to 5 building (factory) inside the area, they arrange car to drop you from one building to another.

Why visit PChem? Because they intend to list the company on Bursa Malaysia, some preparation job involved by the Investment Bank, hence follow the team.

Who is PChem? 
Do you hear about BASF Petronas Chemicals? Or Optimal Olefins (M) Sdn Bhd? Never mind, if you don't, but Petronas, everyone know in Malaysia. PChem is one of Petronas subsidiary, for purpose of listing, it combine 22 chemicals company. PChem plan to raise RM12.5 billion through IPO (biggest IPO in Malaysia history) involve issue of 2.48 billion shares. (after listing Petronas hold 69%) The price for Institutional will be fixed through book building at the range of RM4.50 to RM5.20.

What is PChem doing?
It's very technical, basically convert feedstock gases into various petrochemical derivatives and polymers - Olefins & Polymer (5.1 mtpa) *million tan/annum, and Fertilizer & Methanol. (5.6 mtpa) About 45% of revenue come from local, 15% from China, the rest export to Asia.

What's the selling points?
According to PChem, they buy feedstock from Petronas, so having advantage on cost over other players. (I doubt this point, as the past 3 years, profit was actually in down trend)
Better profit margin in rising crude oil environment, as cost remain stable. (not sure if this is true, as TITAN actually badly hurt in 2009)

What's the negative points?
Very volatile business, good years profit really good, bad years can go negative.
China is in the midst of setting up their own Petrochemical plants, meaning potentially 15% down in profit.


Sail the boat by follow direction of wind - Dow Chemical listed on NYSE, as per above chart, the price quite volatile from Jan to Sep, after Sept, it started the uptrend till now. Similar trend shown for BASF, share price now almost near 52 weeks high. If we assume all chemical companies having the similar trend, then PChem is another Malaysia Boleh! At least for next few weeks!
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