Malaysia Stock: High Profit Margin At Petronas Chemicals Group

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Background

PETRONAS Chemicals Group Berhad is the 4th largest producer in Southeast Asia of olefins, including the plastics polyethylene and polypropylene, and is ranked no. 4 globally in methanol production.

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Its integrated ethylene cracker and petrochemical complex in Malaysia supplies global chemical manufacturers domestically and overseas.

Business Description

PCHEM is part of the PETRONAS oil and gas group, hence a state-owned enterprise, and is Malaysia’s largest integrated olefin petrochemical producer. The olefins and derivatives business, which is ranked no. 4 by capacity in Southeast Asia, accounts for a bit over half of revenue. Fertilizer and methanol accounts for the rest of revenue. With methanol, PCHEM is ranked the 4th largest producer in the world.

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In its petrochemical complex, it has an ethylene cracker combined with facilities to manufacture polyethylene, polypropylene and other olefin and chemical derivative products. PCHEM currently has a total combined annual production capacity of about 11m tons per annum, with a recent substantial capacity increase in fertilizers. It supplies global chemical majors including BASF (BAS GR) and Mitsubishi Chemicals (4188 JP).

PETRONAS’ Refinery and Petrochemical Integrated Development (RAPID) project in the state of Johor should start commercial operations in stages during 2019. In 2017, Saudi Aramco entered into JVs related to RAPID and Saudi Aramco should supply 50-70% of the crude oil feedstock.

Leadership

Arif Mahmood has served as the Chairman of PCHEM since 2015 and PETRONAS Dagangan Berhad concurrently. He graduated with a Bachelor of Science in Electrical Engineering from Boston University, US and an MBA from Massachusetts Institute of Technology, US.

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Sazali Hamzah has been Managing Director and CEO at PCHEM since 2014 and has served as Vice president, Chairman and Director of many companies within PETRONAS. He earned a Bachelor of Chemicals Engineering from Lamar University, US. He also attended Charter Fellow from the Institution of Chemical Engineering and Advanced Management Programme from the Wharton School, University of Pennsylvania in the US.

World Class Benchmarking

PCHEM’s Profitable Growth has been great over the years, and in the past 12 months, it ranked in the top 158 out of 790 large Materials companies worldwide.

Profitability has stayed in the top 20% for the whole time period and ranked in the top 10% since 2017. Growth had shown an improving trend, until the past 12 months when the rank fell to #7 from #5.

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Asset utilization has been poor over the years while Profit margin has ranked #1 persistently.

Sales growth has fluctuated since 2014 and ranked #5 in the most recent period. Margin change stepped up to #2 in 2016 but has fallen down to #9 in the past 12 months.