Perception based on MHB’s strong showing and CIMB’s stabilising role
Petronas Chemicals Group Bhd would likely see a strong debut tomorrow and its share price may range between RM5.50 and RM5.70 on its first day of trade, according to analysts.
Kenanga Investment Bank Bhd research head Yeonzon Yeow said a 10% premium on its first-day trade on the Main Market of Bursa Malaysia would be commendable, above its offer price of RM5.20 per share. Under Petronas Chemicals' initial public offering (IPO), retail investors paid RM5.04 per share while institutional investors paid RM5.20 per share.
Petronas Chemicals is the second Petroliam Nasional Bhd (Petronas) owned unit to be listed this year, following last month's listing of the group's heavy engineering unit Malaysia Marine and Heavy Engineering Holdings Bhd (MHB).
MHB, which ended 19% above its offer price of RM3.80 on the first day of trading, has somewhat sustained its higher trading price in the past month. Its share price ended higher by 2 sen at RM4.50 yesterday.
Therefore, Petronas Chemicals' share premium upon its debut would likely be sustained over the short term as seen with MHB, said analysts.
Moreover, the company's share price is expected to remain stable over the short term given that CIMB Investment Bank Bhd, the principal adviser and managing underwriter, has agreed to buy up to 372 million shares in the company from the open market to stabilise the stock post listing.
CIMB has been designated as the so-called stabilising manager for the IPO and would carry out its mandate to keep the stock stable for a maximum of 30 days post listing.
We expect Petronas Chemicals' price to remain stable (over the long term) driven by an anticipated positive market performance over the next 12 months, TA Securities research head Kaladher Govindan told StarBiz.
Analysts said the stock would generate keen interests among local and foreign investors, driven by its potential earnings and dividend payout ratio.
Maybank Investment Bank Research said that Petronas Chemicals could be the biggest FTSE Bursa Malaysia KL Composite Index (FBMKLCI) stock within the next five years.
In the next upcoming cyclical peak, the company is likely to surpass its previous net income record of RM3.9bil achieved in financial year ended March 31, 2008 (FY2008). With its leaner fixed cost structure, Petronas Chemicals can easily render the highest absolute net profit of any KLCI member, it said in a report last Friday.
In a media statement yesterday, Bursa Malaysia Bhd chief executive officer Datuk Yusli Mohamed Yusoff said Petronas Chemicals' listing was a positive contribution to the local capital market as it would bring about a potential re-rating of the oil and gas sector and, in turn, boost its valuations further.
He added that Petronas Chemicals offered a wider investment opportunity to local and international investors and the listing boded well with the bourse's efforts of boosting market liquidity.
After its public listing, Petronas Chemicals would be included as a constituent of the FBMKLCI. It would be added to the index effective Monday with a total share issue of 8 billion and an investability weighting of 30%.
Petronas Chemicals' market value would be RM41.6bil based on the institutional price, making it one of the largest petrochemical producers in South-East Asia.
According to research houses, the target price for Petronas Chemicals ranges from RM5.51 to RM6.70.
Maybank said Petronas Chemicals was worth RM6.64 per share based on price-earnings ratio (PER) and RM6.70 per share based on discounted cash flow valuations.
This implies FY2012 PER of 13.1 times which is undemanding relative to its strong growth prospects (+26% 3-year earnings compound annual growth rate), it said.
OSK Research Sdn Bhd's target price for the company was RM5.51 based on a PER of 16 times for FY2012 while JF Apex Investment Research's target price was RM5.70.
This PER is slightly above its close peer average of 15 as the company deserves such valuations since it gets strong suppport from Petronas group, especially in terms of low feedstock prices, which make up close to 40% of its total cost, OSK Research said in a report last week.
The research houses also highlighted Petronas Chemicals' strong cashflow and attractive dividend payout ratio of 50%, which was considered the highest compared with peers like Saudi Basic Industries Corp, Thailand's PTT Chemical Public Co Ltd and India's Reliance Industries Ltd.
Maybank said Petronas Chemicals' capacity to pay dividends was substantial with projected free cashflow yields of 10.7%-19% in FY2011-13. - The Star
