Petkim: Raise estimates on updated FX; fundamentals remain challenging

Inflation accounting: Petkim has applied TAS 29 “Financial reporting in hyperinflationary economies” in its consolidated financial statements as of and for the year ending 31 December 2023. According to the standard, financial statements prepared in the currency of a hyperinflationary economy are presented in terms of the purchasing power of that currency at the balance sheet date. Inflation accounting had a TRY12.9bn positive impact on revenue and a TRY2.6bn negative effect on EBITDA for 2023.

The group has also accounted STAR Refinery’s share of profit (TRY3.2bn) through equity income method from Q4’23 onwards and recorded a one-time gain on acquisition of shares of Rafineri Holding of TRY6.7bn. – the transaction happened for TRY14.5bn in 2018.

2024 outlook: Petkim expects similar capacity utilization in 2024 to 2023 levels and gave guidance for EBITDA of USD120-150mn. Net profit guidance of USD250- 300mn for STAR Refinery (12% stake owned by Petkim). The negative impact from the inflation accounting effect will continue in the coming quarters and the overall earnings environment through 2024 will continue to be challenged as we do not see any meaningful uptick in profit margins. Q1 results might get better on the back of higher base chemical pricing due to restocking momentum but pricing momentum is fading as restock ebbs (see MENA Chemicals – Q1 wrap – sequentially better, but momentum fading, 5 May 24).

Medium-term outlook remains challenged (see MENAT Chemicals – In search of a valuation floor, 5 Feb 24) and we expect weak margins to continue to weigh on profitability.

Reiterate Reduce, raise estimates, and raise TP to TRY15: We raise our EBITDA estimates for 24/25 by 29%/14% to reflect the latest USD/TRY forecasts from our FX team. We use a DCF to value Petkim and raise our target price to TRY15 from TRY13 on account of higher earnings estimates. We reiterate our Reduce rating.




HSBC Global Research