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The Thee Numbers That Make Petronas Chemical Group Berhad Bubble

There will always be a demand for chemicals. And Petronas Chemical Group Berhad (KLSE: PCHEM; 5183.KL), which is a subsidiary Malaysia’s state-owned oil company, Petronas Nasional Berhad, makes a lot of them. It is quite efficient at making them it too.

Petronas Chemical generates around MYR10.9 on every MYR100 of shareholder equity. That compares well with its South East Asian peers that include Thailand’s PTT Global Chemical and Indonesia’s PT Chandra Asri Petrochemical.

Petronas Chemical’s high Return on Equity of 10.9% can be traced to its impressive Net Interest Margin of 20.5%. It implies that the chemical outfit generated MYR20.50 on every MYR100 of sales rung up in its till last year.

But that’s not all. The chemical company, which derives the bulk of its revenues from olefins and polymers, generated MYR46 on every MYR100 of assets at its disposal. The median Asset Turnover for the Malaysian market is about 40% lower.

Petronas Chemical doesn’t employ a great deal of Leverage. It has Total Liabilities of MYR4.2 billion and Total Assets of MYR30.8 billion. That equates to a Leverage Ratio of just 1.16.

By deconstructing the Return on Equity for Petronas Chemical Berhad, it is easy to why it bubbles. Its RoE of 10.9% is the product of an impressive Net Interest Margin of 20.5%; an efficient Asset Turnover of 0.46 and light Leverage Ratio of 1.16.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.