Lowering FY22/23 estimates; D/G to HOLD
TTNP’s 12MFY21 core NP came in broadly below consensus. Margin compression from elevated naphtha prices continues to pose downside risks and as such, we have slashed both our FY22/23E earnings estimates by c.35%. We introduce FY24E and rollover our valuation base year to FY23, with a lower TP of MYR2.26 (-25%) – pegged to an unchanged 3.7x FY23 EV/EBITDA (LT mean). With limited upside, we downgrade TTNP to a HOLD.
A weak showing in 4Q21; below consensus
Excluding unrealized forex losses of MYR13m and EIs (totalling MYR111m), 4Q21 core PATMI came in at MYR89m (-37% YoY; +43% QoQ). This brought cumulative FY21 core net profit to MYR973m making up just 76%/89% of ours and the street’s full-year estimates. Results were broadly below expectations due to stronger-than-expected margin compression in the quarter from surging feedstock costs.
Strong ASPs eroded as margin compression sets in
Key takeaways from 4Q21’s set of results: (i) Revenue improved by 40%/20% YoY/QoQ from higher blended ASPs (MYR5,046/t vs MYR3,892/t in 4Q20) and improved plant utilisation (88% vs 76% in 3Q21) in the absence of major statutory turnarounds; (ii) Despite relatively high ASPs, EBITDA margins compressed by 35%/17% YoY/QoQ from higher actualised naphtha consumption costs, in-line with the strong uptrend in crude prices; (iii) headline NP (MYR187m) was boosted by two lumpy one-offs – MYR101m from associate LC USA’s arbitration settlement with its JV partner and MYR10m from the sale of its 10% stake in Lotte UBE Synthetic Rubber.
Tepid outlook in FY22 with PCHEM’s entry
Despite having its second-best year since listing, it is unlikely that TTNP will be able to replicate its performance in FY22. Product spreads continue to soften (-5%/-11%/-11% QtD-1Q22 for HDPE/LDPE/PP) as surging naphtha costs outweigh demand-driven ASPs gains. PCHEM’s entry into the downstream chemical space via the start-up of PIC in 1Q22 will further pressure TTNP’s premium (c.USD50-100) in the domestic market. With heavy capex outlay for the LINE project (MYR9b through to 2025) and limited alternative income streams to mitigate the downside, we have turned downbeat on its near-to-medium term prospects. D/G to HOLD.