Sumoy

Investment ideas and financial education

Petronas Chemicals Group – Go long like a true insider

Dow Chemical and Saudi Aramco are embarked in huge a USD20bn petrochemical project. Despite being away of the growing Asian markets, SADARA project makes perfect sense thanks to the very advantageous feedstock costs in Middle East.  The SADARA Joint Venture will have estimated yearly sales of USD10bn, and thus CAPital EXpenditure will be 20/10=2.0x yearly sales.

Grossly speaking, Petronas Chemicals (PCHEM:MK) has assets similar to SADARA, but it is closer to the end markets, and it is similarly valued at 41(2016 Firm Value)/19(2016 sales)=2.1x yearly sales. PCHEM is an older and smaller version of SADARA if you want, but its assets are up and running now -there are little project execution surprises here.

With a net cash position to enhance organic growth, the major Malaysian petchem player seems to be fairly valued now (fwd P/E=13, irr=10.5%), but it may be worth to keep an eye on it: It is a bargain whenever it drops below MYR5.5. (10% drop required from current levels).  More in the attached report.

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One comment on “Petronas Chemicals Group – Go long like a true insider

  1. pankajoswal
    31/01/2013

    Saudi Aramco are moving to South East Asia too, maybe not as expensive as the $US20 billion put down for this project, but still substantial. The company is making some big steps.

    It’s really very interesting.

    http://pankajoswal.wordpress.com/2013/01/31/pankaj-oswal-gulf-companies-look-to-se-asia-for-petrochemicals/

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This entry was posted on 17/12/2012 by and tagged , , .
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