PETRONAS Chemicals Group (PCG): 2012-2023 Overview

PETRONAS Chemicals Group (PCG): 2012-2023 Overview

 1. Net Profit Trends and Financial Performance

Challenging Years: FY2014, FY2020, and FY2023 experienced significant declines in net profit.

FY2014: The company faced headwinds due to weaker global demand, primarily driven by China’s slowing economy. This bearish market sentiment, starting in 2013, persisted into 2014, heavily impacting profitability.

FY2020: This period saw the global impact of the COVID-19 pandemic, with lower product prices and demand contraction reducing net profit.

FY2023: Despite achieving record-high production volumes, the company faced profit declines due to high feedstock costs, sluggish demand, and excess capacity in the market. The global economic slowdown and additional capacities from competitors created downward pressure on product margins​

2. Geographical Revenue Diversification

Malaysia and China Dominance:

In FY2012, Malaysia (38.68%) and China (20.93%) accounted for over half of the company's revenue. This was reflective of the company’s strong presence in key Asian markets.

Diversification:

By FY2023, Malaysia’s contribution dropped to 26.29% and China to 12.36%, indicating a successful diversification strategy. The company's revenue streams expanded across more regions, reducing reliance on a few key markets. Notably, Sweden emerged as a new contributor through the Perstop acquisition in 2022, aligning with the company’s strategy to build an additional 30% of revenue stream from non-traditional businesses by 2030.

3. Business Segments and Operational Shifts

Shift in Segment Profitability:

In earlier years (e.g., FY2012), the Olefins & Derivatives (O&D) segment had the largest profit contribution. However, by recent years, Fertilizers & Methanol (F&M) became the dominant profit contributor. F&M's higher profit contribution suggests that any fluctuations in this segment will have a more pronounced impact on overall profitability.

4. Production Volume vs. Profitability & Valuation:

Production Capacity:

The company consistently expanded its production capacity, and by FY2023, it reached its highest ever production volume. However, this did not translate into higher profits. Instead, FY2023 saw one of the lowest profit-to-production ratios. This suggests that while operational efficiency may have improved, external factors like low product prices and high input costs significantly limited profitability.

Utilization and Efficiency:

The plant utilization rate remained healthy, especially in years like FY2015 (85%) and FY2023 (96%), indicating strong operational performance. However, even with this, profitability declined due to market conditions, revealing the industry’s sensitivity to external price pressures.

Valuation:

Despite the higher production capacity, the company’s FY2023 price-to-book (PB) value is currently the lowest, reflecting market pessimism. However, if the industry experiences a rebound, the company is well-positioned to capitalize on its enhanced production capacity, potentially resulting in higher profits and improved PB ratios

Disclaimers:

Please make your independent evaluation, consider your own investment objectives and financial situation before participating in any transaction. I do not take any responsibility for your losses.

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