Fertiliser market turmoil a boon to the bottom-line
Record high F&M segment ASPs; maintain BUY
Geo-political turmoil continues to drive ASPs higher across most of PCHEM’s key products (see Fig. 1), with the F&M segment chalking record highs in March. We raise PCHEM’s FY22-24E EPS estimates by 12%/6%/5% and our TP is nudged higher to MYR11.20 (+2%), pegged to an unchanged 9x FY23E EV/EBITDA (LT Mean). We have also introduced an expanded ESG tear sheet for PCHEM and assigned it an above average overall score of 69, based on its aggregated quantitative/qualitative/target-based metrics.
F&M segment ASPs breach new highs in March
A slew of supply-side disruptions in the global fertiliser market have driven ammonia and urea ASPs to record highs in March. Riding on the tailwinds of 4Q21’s supply tightness, ASPs for urea and ammonia in 1Q22 averaged USD842 (+16% QoQ) and USD960 (+21% QoQ) in the wake of the Russo-Ukrainian conflict – both commodities are now up a staggering 78%/75% YoY respectively in the first 3 months of 2022. The conflict has also had a knock-on effect (albeit less pronounced) on PCHEM’s O&D ASPs with all
product classes up 2%-37% YoY in FY22 YTD, driven by elevated oil prices.
Set to profit (again) from the ME arbitrage trade
Russia’s invasion of Ukraine in late Feb triggered the shutdown of the Togliatti-Odessa ammonia pipeline (transports 2-2.5m mT/annum), effectively curtailing global ammonia supply by 10-15%. Soaring natural
gas prices (accounts for 75-90% of production costs) have also rendered production at key Euro fertiliser plants unfeasible with Nitrogenmuvex, Borealis AG and Yara announcing temporary shutdowns in March. When Yara underwent a similar shutdown in 4Q21, PCHEM profited from the arbitrage trade as large ME producers diverted SEA shipments to premium-paying Euro customers; we posit a repeat scenario to play out in 2Q22.
Supply tightness to persist; raising EPS estimates
Factoring in the chronic supply tightness in the global F&M market and elevated ASPs across all product classes, we have raised PCHEM’s FY22- 24E earnings estimates by 12%/6%/5%. We opine that supply constraints, esp. in the F&M segment, are likely to persist well into 3/4Q22 (from end2Q22 previously). Having already completed 2 major turnarounds this year and given its solid operational track-record (>90% plant utilisation since 2016), it is set to benefit from elevated ASPs for the rest of 2022; BUY.