FIRST and foremost, this is not intended as a gate-crashing statement to spoil Petronas Chemicals Group Bhd’s party as it sealed a landmark €1.54 bil (RM7.02 bil) cash deal to purchase Swedish specialty chemicals group Perstorp Holding AB from Financière Forêt SARL yesterday (May 17).
This is just a gentle reminder not to throw caution to the wind given the deal was struck at a time of high oil prices (with the Brent crude hovering at US$110/barrel to be precise).
Hopefully, an in-depth due diligence which encompasses recession-proofing has been conducted prior to the mega acquisition as history had it that a major contributing factor for Sapura Energy Bhd’s downfall today is attributable to its past large-scale acquisitions at a time of spiralling oil prices.
For the record, the global integrated oil & gas (O&G) service provider’s purchase of Seadrill Ltd’s drilling operations for US$2.9 bil (February 2013) and Newfield International Holdings Inc’s Malaysian assets for US$895 mil (February 2014) boosted its assets and earnings immediately, thus resulting in its stock price spike.
However, they were made at the top of the oil and gas cycle. When oil prices collapsed, so did earnings and the value of these assets, resulting in huge losses and asset impairments.
“While we acknowledge the rationale for the Perstorp acquisition – to strengthen Petronas Chemicals’ petrochemicals portfolio and diversify into specialty chemicals – we are watchful over the sustainability of record-high earnings which would otherwise suggest higher forward valuation if the price turns given Perstorp’s volatile earnings track record over the past five years,” RHB Research analyst Sean Lim further forewarned in a company update.
The Swedish firm, according to the research house, was in net losses in FY2017 and FY2019 but recorded minimal profits in FY2018 and FY2020.
It was only in FY2021 that Perstorp achieved its record EBITDA (earnings before interest, taxes, depreciation, and amortisation) and profit of RM473 mil (6% of Petronas Chemicals’ core earnings) on improved margins amid favourable ASPs (average selling prices).
“Therefore, the long-term sustainability of earnings could be questionable,” RHB Research pointed out even as it reiterated its “buy” rating on Petronas Chemicals and unchanged target price of RM12.21.
At 11.37am, Petronas Chemicals was up 4 sen or 0.4% to RM10.06 with 1.25 million shares traded, thus valuing the company at RM80.48 bil. – May 18, 2022
