3 Things For Investors To Know About Petronas Chemicals Group Bhd

Petronas Chemicals Group Bhd (KLSE:5183.KL) is not only the largest chemicals company in Malaysia, it is also one of the largest listed companies on Bursa Malaysia, the stock exchange of Malaysia.

With a market capitalization of RM53.4 billion (S$17.8 billion), Petronas Chemicals is a key constituent of the Kuala Lumpur Composite Index (KLCI) too.

Listed since 2010, the company has generated a total return of close to 50%. Here are three things that might interest you about the company.

Monopoly is the name of the game

Petronas Chemicals is a listed subsidiary of PETRONAS, the integrated oil and gas company of Malaysia. Due to its strong relationship with the government, Petronas Chemicals is also the sole producer of common chemicals such as methanol, urea, paraxylene, butanol, and more, in Malaysia.

From its latest financials, Petronas Chemicals had sourced 37% of its revenue from Malaysia. This means that a significant portion of the company’s revenue is actually very sticky, given its monopolistic position in Malaysia.

Highly-efficient   operations

Although the company operates in a commodity-like business – it manufactures common chemicals and sells them globally – its operations are run very efficiently.

The company has maintained a return on equity of more than 10% since 2009. Moreover, it has achieved its returns on equity while having a strong balance sheet that has been in a net-cash position. In the last quarter, Petronas Chemicals had a net-cash position of more than RM8.5 billion (S$2.8 billion).

Rapid growth from RAPID

In 2012, the Johor state government had launched the refinery and petrochemical integrated development (RAPID) project in Pengerang, Southern Johor. The RAPID project is part of the Pengerang Integrated Petroleum Complex which is said to be a project that’s worth up to RM97 billion. The RAPID project itself has a budget of around RM57 billion.

Petronas Chemicals wants to play a major role in the RAPID project. According to its earnings report for the first-quarter of 2016, the company has approved a total of RM8.3 billion in capital expenditures to be invested for the RAPID project. Given the scale of the entire project and Petronas Chemicals’ commitment, this might be a major growth driver for the company going forward.

Foolish Summary

Petronas Chemicals is one of the largest companies in Malaysia. It has a history of being an efficient operator and there are now signs of a major growth driver appearing for the company.

But, investors have to note that the company is still operating in a commodity-like business. As such, there are macro factors such as chemical prices that Petronas Chemicals has no control over.

The company is now trading at 19 times trailing earnings and offers a 3.1% dividend yield.

The Motley Fool's purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock -- Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

Like us on Facebook to keep up to date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better. 

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