Reflections on Volume

Big volume without further upside equals distribution
Big volume without further downside equals accumulation

Volume tends to peak at turning points
Volume often precedes price movement
Volume is a relative study

Tuesday, November 2, 2010

Petronas Chemicals' big debut

By Goh Thean Eu

Petronas Chemicals Group Bhd, a Petroliam Nasional Bhd (Petronas) subsidiary, will be listed on November 26 in what will potentially be the biggest initial public offering (IPO) in Southeast Asia, valued at over RM12.5 billion.

The IPO involves 2.48 billion shares, or 31 per cent of Petronas Chemicals' enlarged share capital, according to its listing prospectus published yesterday.
The exercise includes an offer for sale of 1.78 billion shares and issuance of 700 million new shares. More than 10 per cent, or 293 million of the IPO shares, are being offered to retail investors at RM5.05 each.
The price for institutional investors is being fixed via a bookbuilding, with the bidding price starting at RM4.50, sources said.
The share sale is set to be the biggest in the region, at least in recent times. It will surpass the US$2.7 billion (RM8.4 billion) raised by Global Logistic Properties Ltd in Singapore last month and the US$3.3 billion (RM10.2 billion) raised by Maxis Bhd last year.

Petronas Chemicals expects to generate some RM3.54 billion proceeds from the 700 million new shares, the prospectus noted.

Almost two-thirds of the proceeds, or RM2.24 billion, will be used for business expansion and acquisitions in the next five years. About one-third, or RM1.2 billion, is for working capital over two years.

Petronas Chemicals' sales and profit have declined in the past two years. Its earnings eased 25.5 per cent to RM3.45 billion in the financial year ended March 31 2009, while revenue dropped 3.79 per cent to RM12.86 billion.

The following fiscal year, net profit fell 24.7 per cent to RM2.59 billion while sales slowed 1.3 per cent to RM12.2 billion.

Analysts, however, remained upbeat about response to the IPO. This was due partly to the strong interest shown in last week's listing of Malaysia Marine and Heavy Engineering Holdings Bhd, another Petronas outfit.

"I believe the IPO will generate good response from investors. First is that the company gets its gas feedstock from its parent, which may translate into better margins. This will help it to be profitable, even during bad years.

"Second is that it will be a composite index component stock. Investors just can't ignore that," said an analyst from a local brokerage, who declined to be named.

The analyst added that Petronas Chemicals' proposed dividend policy of giving half of its net profit back to shareholders would add to its appeal.

Most analysts and research heads are in a "blackout" phase currently as the investment banks they are working for are involved in the IPO. During this time, they are not allowed to issue research reports or comment on Petronas Chemicals.Signs are that the company is on the growth path again.

In the four months ended July 31 2010, its net profit jumped 59 per cent to RM938 million. Group revenue rose by almost 30 per cent to RM4.22 billion.

"It is a volatile business. You have good years and bad years. And when you are in good years, the profits are really, really good," said a research head.

Some analysts, however, were not entirely positive on the company.

"It is currently in a very tight spot. It is caught in between the supplier countries and consumer countries, whereby supplier countries like those in the Middle East and consumer countries like China are setting up their own petrochemical plants.

This has resulted in increased competition," said another analyst.

The principal adviser, managing underwriter and joint underwriter of the mega-IPO is CIMB Investment Bank Bhd, with 13 other local investment banks as joint underwriters.

The retail offering, which began yesterday, will end on November 9.

The institutional offering, which started on October 26, will end on November 12.

Price determination date and balloting will also be on November 12.

Read more: Petronas Chemicals

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