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Morgan Stanley (NYSE:MS) upgraded Petronas Chemicals Group (PCHEM:MK) to Equalweight from Underweight on Monday, raising its price target to MYR3.83 from MYR3.62 as the chemical industry shows signs of bottoming out.
The investment bank cited clear indications that the chemical cycle has reached its low point, with more than 4 million tons per annum of Asian petrochemical capacity being mothballed or closed entirely. Morgan Stanley noted that over a dozen companies across its Asia coverage have reduced capital expenditure by half, with some cutting spending by approximately 80%.
Around two-thirds of these companies are now looking to divest non-core assets, according to the investment firm, which described the prolonged downturn as having "all the signs of a brewing upcycle." The industry’s price-to-book multiple has fallen to 0.5x, suggesting the market is pricing in nearly a third of capacity being shut down or written down.
Petronas Chemicals has not been operating multiple aromatic capacities, and its new cracker startup has been delayed by more than five years to 2026. The Malaysian petrochemical company’s situation reflects broader industry trends that prompted the rating change.
While Morgan Stanley expects a potential multiple expansion for Petronas Chemicals due to the cycle turn, it cautioned that an earnings inflection is approximately 12 months away. The upgrade comes as the investment bank sees value emerging in the sector after the extended downturn.
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