Petronas Chemicals Group - Credit Suisse

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

15 February 2011 Asia Pacific/Malaysia

Equity Research Major Chemicals

Petronas Chemicals Group

(PCGB.KL / PCHEM MK) INITIATION

Awakening petrochemical giant ■ Most leveraged to oil prices. We initiate coverage of Petronas Chemicals

Group (PCG) with an OUTPERFORM rating and a target price of RM7.50 implying 25% upside. PCG is the largest petrochemical stock by market cap and the most leveraged to oil prices compared to its peers in the O&G and chemicals sector in SEA markets.

■ Improving efficiency added to its core strength of low-cost gas. PCG reorganised itself prior to the IPO by consolidating its control in different petrochemical ventures. Its petrochemical complexes are now being run as a single entity, which should result in improvement in overall utilisation and cost control. This should further strengthen its core competitiveness, which is centred around its access to low-cost gas feedstock from the Petronas Group.

■ Earnings improvement to be the catalyst. Our forecast of PCG’s average annual growth rate of earnings during FY11-13 of 18% is above the expected growth of its regional peers of between 0.6% and 8.5%. Its earnings growth is expected to be driven initially by better efficiency, while a recovery in the petrochemical cycle would drive its earnings beyond 2012.

■ Target price RM7.50. Though PCG’s current valuation is at par with regional peers, we see upside bias to its share price. Its earnings growth momentum is expected to be superior to its peers. Within the Malaysian market, PCG is the largest and most liquid stock that gives exposure to the oil and gas sector, which is pivotal to the government’s Economic Transformation Programme (ETP). Relative to other stocks in Malaysia, PCG is attractively valued based on its premium ROE and higher prospective dividend yield. Our target price of RM7.5 is based on DCF which assumes ethane prices would be doubled after the agreements expire. We initiate our coverage with an OUTPERFORM rating.

Share price performance

45678

Dec-10

8090100110120

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the KUALA LUMPUR COMPOSITE index which closed at 1494.52 on 11/02/11 On 11/02/11 the spot exchange rate was RM3.05/US$1

Performance over 1M 3M 12M Absolute (%) 0.50 — — Relative (%) 5.1 — —

Financial and valuation metrics

Year 3/10A 3/11E 3/12E 3/13E Revenue (RM mn) 12,203.0 13,260.7 14,916.1 15,756.6 EBITDA (RM mn) 4,145.0 4,806.2 5,667.0 6,210.4 EBIT (RM mn) 3,249.0 3,789.2 4,673.0 5,236.3 Net income (RM mn) 2,199.0 2,862.3 3,426.4 3,994.5 EPS (CS adj.) (RM) 0.27 0.36 0.43 0.50 Change from previous EPS (%) n.a. Consensus EPS (RM) n.a. 0.34 0.42 0.48 EPS growth (%) -22.0 30.2 19.7 16.6 P/E (x) 21.9 16.8 14.0 12.0 Dividend yield (%) — 3.0 3.6 4.2 EV/EBITDA (x) 10.2 9.1 7.3 6.3 P/B (x) 2.8 2.5 2.2 2.0 ROE (%) 13.4 15.7 16.8 17.7 Net debt/equity (%) Net cash Net cash Net cash Net cash

Source: Company data, Thomson Reuters, Credit Suisse estimates.

Rating OUTPERFORM* [V] Price (11 Feb 11, RM) 6.01 Target price (RM) 7.50¹ Chg to TP (%) 24.8 Market cap. (RM mn) 48,080 (US$ 15,748) Enterprise value (RM mn) 43,631 Number of shares (mn) 8,000.00 Free float (%) 23.00 52-week price range 6.37 - 5.39 *Stock ratings are relative to the relevant country benchmark. ¹Target price is for 12 months. [V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts

Paworamon (Poom) Suvarnatemee, CFA 662 614 6210

[email protected]

Puchong Kometsopha 66 2 614 6215

[email protected]

15 February 2011


(PCGB.KL / PCHEM MK) 2

Focus charts and tables Figure 1: PCG remains attractive on P/E against its two-

year earnings CAGR

Figure 2: PCG’s valuation and return are attractive against

the Malaysian stock market

PCG

Reliance

Industries

LG Chem

HonamHanwha

Far Eastern

FPCC

FCFC

Nan YaFormosa

Plastics

10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

-5.0 0.0 5.0 10.0 15.0 20.02-year CAGR (%)

P/E

15.3 15.8

2.2

13.9

2.8

14.0

19.7

2.2

16.8

3.6

0

5

10

15

20

25

P/E (x ) EPS grow th

(%)

P/B (x ) ROE (%) Div idend y ield

(%)

Malay sia market PCG*

* PTTCH is excluded due to the planned merger deal. Source: Credit

Suisse estimates

* PCG’s valuation is based on FY12E which ends in March 2012 while

market is based on FY11E. Source: Credit Suisse estimates

Figure 3: Margin outlook by products FY12E FY13E-15E

Ethylene !" # Propylene !" # PVC & VCM !" !" Paraxylene $ !" Benzene !" !" EG # # PE !" # Urea # # Methanol # # Source: Credit Suisse estimates

Figure 4: Impact of changes in earnings assumptions to PCG’s FY12 earnings Current Net profit % change EPS P/E

Units assumptions (RM mn) from base (RM) (x)

Base case 3,426 0.43 14.2

RM/US$ (5% appreciation) RM/US$ 3.06 3,126 -8.8 0.39 15.6

Oil price (+ US$10/bbl) US$/bbl 85 3,980 16.1 0.50 12.3

Ethane cost (+ 10%) US$/t 161 3,390 -1.1 0.42 14.4

HDPE-naphtha spread (+ US$100/t) US$/t 466 3,526 2.9 0.44 13.8

PX-naphtha spread (+ US$100/t) US$/t 500 3,535 3.2 0.44 13.8

EG-ethylene spread (+ US$100/t) US$/t 350 3,505 2.3 0.44 13.9

PP-naphtha spread (+ US$100/t) US$/t 566 3,441 0.4 0.43 14.2

Methanol price (+ US$100/t) US$/t 306 3,628 5.9 0.45 13.5

Urea price (+ US$100/t) US$/t 377 3,631 6.0 0.45 13.4

Source: Credit Suisse estimates

Majority of PCG’s products should see margin improvement in the future

PCG’s earnings are sensitive to oil prices due to its relatively fixed ethane costs

15 February 2011



Awakening petrochemical giant We initiate coverage of Petronas Chemicals Group (PCG) with an OUTPERFORM rating and a target price of Rm7.50, implying 25% upside. PCG is the largest petrochemical stock listed in SEA and among the five largest stocks in Malaysia. It is most leveraged to oil prices among its peers in the O&G and chemicals sector in ASEAN markets. Its operations are divided into two main segments: (1) olefins and polymers (which contribute almost 80% of profit in FY10); (2) fertilizers and methanol. PCG started trading in November 2010.

Most leveraged to oil prices compared to peers PCG’s core strengths rely on its access to the relatively fixed price ethane from the Petronas Group. With its existing feedstock cost structure, PCG’s profitability is higher and more leveraged to oil prices compared to other listed firms in the oil and gas sector in SEA. Its low ethane price has put PCG’s ethylene cost and its derivative products at a similar level to that of the Middle East producers. PCG also has access to feedstock at a discount to market price for methane, propane, and butane. However, costs of these feedstock are higher than its ethane cost and not fixed but linked to end-product prices or global price indices. We estimate that for every US$10/bbl increase in oil price, its earnings will rise by 16%, compared to its peers of between 10% and 12%.

Steady growth path PCG is planning to pursue a steady growth strategy. In FY11-12 when the petrochemical cycle remains at the trough, PCG is expected to achieve earnings growth by reaping benefits from the recent reorganisation. Prior to the listing, PCG bought out the minority shareholders in its various ventures in the olefins chain and effectively gained control of those operations. Those plants have since been operated as a single resource starting in FY11, allowing for revenue maximisation by improving plants’ utilisation (through central planning) and cost reduction by consolidating administrative functions. In the medium term, PCG has plans to increase output or enhance efficiency by making changes to the configuration of its production process. From FY13 onwards, we expect margin improvement to drive PCG’s profitability as margins for the majority of its products in ethylene, methanol and urea are currently at a cyclical low.

Initiate with OUTPERFORM Our forecast of PCG’s average annual growth rate of earnings during FY11-13 of 18% is above the expected growth of its regional peers of between 0.6% and 8.5%. Its earnings growth is expected to be driven by improving efficiency during FY11-12, while the recovery of the ethylene cycle is expected to drive earnings beyond 2012. We expect margins of all PCG products to improve from the current level, with the exception of paraxylene which may see a short-term correction.

Though PCG’s current valuation is at par with its regional peers, we see upside bias to its share price. PCG’s earnings growth momentum is expected to be superior to its regional peers. Within the Malaysian market, PCG is the largest and most liquid stock that has exposure to the oil and gas sector, which is pivotal to the government’s Economic Transformation Programme (ETP). Relative to other stocks in Malaysia, PCG looks attractively valued based on its premium ROE and a higher dividend yield. Our target price of RM7.50 is based on DCF which assumes ethane prices would be doubled after the agreements expire in 2016 and 2023.

Risks The key risk to PCG’s competitiveness is the potential increase of ethane cost as part of the government’s moves to phase out the discount available to various sectors of the economy. Other risks are petrochemical price volatility and a stronger Malaysian ringgit.

Core strength rely on access to cheap gas feedstock

To improve efficiency before reaping the benefits from margin recovery

Earnings momentum to be the catalyst

OUTPERFORM with target price of RM7.50

15 February 2011



Financial summary Figure 5: Key financial data Year-end 31 March FY09 FY10 FY11E FY12E FY13E

Key assumptions

Avg RM/US$ 3.43 3.46 3.14 3.06 3.06

Oil price assumption (US$/bbl) 82.1 69.6 83.1 85.0 85.0

Utilisation rate: Olefins& polymer (%) 87 88 87 92 95

Utilisation rate: urea & methanol (%) 95 79 84 92 92

HDPE-naphtha spread (US$/t) 586 576 475 466 512

PX-naphtha spread (US$/t) 213 391 420 500 550

Urea price (US$/t) 454 292 292 377 400

Methanol prices (US$/t) 275 224 260 306 350

Profit and loss (RM mn)

Sales 12,367 12,203 13,261 14,916 15,757

Gross profit 4,867 3,642 4,443 5,358 5,961

EBITDA 5,130 4,145 4,806 5,667 6,210

EBIT 4,443 3,249 3,789 4,673 5,236

Recurring profit 2,818 2,199 2,862 3,426 3,994

Core EPS (RM/sh) 2,818 2,199 0.36 0.43 0.50

Reported profit 2,818 2,199 2,862 3,426 3,994

Reported EPS (RM/sh) 2,818 2,199 0.36 0.43 0.50

Balance sheet (RM mn)

Cash and cash equivalents 7,081 7,532 8,157 9,986 10,904

Trade and other receivables 1,360 2,237 1,954 2,198 2,322

Property, plant and equipment 11,121 12,992 12,975 12,681 12,428

Total assets 23,234 26,892 28,231 30,331 31,520

Trade and other payables 2,896 4,734 1,691 1,833 1,879

Short-term borrowing 745 623 447 600 600

Long-term borrowings 586 1,254 3,261 2,761 1,261

Total liabilities 5,416 7,844 7,225 7,049 5,637

Shareholders' equity 15,736 17,069 19,411 21,407 23,688

Cash flow (RM mn)

Net income 2,818 2,199 2,862 3,426 3,994

Non-cash items 477 612 204 1,015 883

Changes in working capitals 1,772 686 (2,537) (180) (69)

Cash from operations 5,067 3,497 529 4,262 4,808

PPE (1,241) (2,767) (1,000) (700) (721)

Investments and others 456 41 (215) 46 45

Cash flow investments (785) (2,726) (1,215) (654) (676)

Changes in debts (191) 546 1,831 (347) (1,500)

Other cash flow from financing (1,971) (866) (520) (1,431) (1,713)

Cash flow from financing (2,162) (320) 1,311 (1,778) (3,213)

Change in cash 2,120 451 625 1,829 918

Free cash flow 4,282 771 (686) 3,607 4,131

Key ratios (%)

Sales growth -3.8 -1.3 8.7 12.5 5.6

Gross margin 39.4 29.8 33.5 35.9 37.8

EBITDA margin 41.5 34.0 36.2 38.0 39.4

Net income margin 22.8 18.0 21.6 23.0 25.4

Debt to equity 8.5 11.0 19.1 15.7 7.9

Net debt to equity Net cash Net cash Net cash Net cash Net cash

ROE 18.4 13.4 15.7 16.8 17.7

ROA 19.7 13.4 14.9 16.4 17.9

Source: Company data, Credit Suisse estimates

15 February 2011



Most leveraged to oil prices compared to peers PCG’s core strengths rely on its access to the relatively fixed price ethane from Petronas. With its existing feedstock cost structure, PCG’s profitability is higher and more leveraged to oil prices compared to other listed firms in the oil and gas sector in SEA. Its low ethane price has put PCG’s cost in the ethylene chain at a similar level to that of the Middle East producers. PCG also has access to feedstock at a discount to market price for methane, propane and butane. However, costs of these feedstock are higher than its ethane cost and not fixed but linked to end-product prices or global price indices. We estimate that for every US$10/bbl increase in oil price, its earnings will rise by 16%, compared to its peers of between 10% and 12%.

Figure 6: Feedstock pricing mechanism Gas Pricing mechanism

Ethane Two main contracts for two crackers with expiration in 2016 and 2023

Pricing between US$1.5 and US$2/mmbtu (similar level with M/E, lower than US gas cost of US$4/mmbtu, PTTCH's cost of US$5/mmbtu)

Fixed price at Ethylene Malaysia and with 2% annual escalation cost at Optimal Olefins

Methane For urea, linked to urea price. Actual price is close to SEA prices

For methanol, linked to basket of fuel and petrochemical indices

Butane, propane Linked to Saudi Aramco announced price


Fixed ethane cost: Core to PCG’s strengths With an attractive ethane feedstock cost, PCG is one of the most competitive players in Asia in the ethylene chain. According to Nexant, PCG’s ethane costs are in line with those paid by the average Middle Eastern petrochemicals producers. As such, its ethane plants have cost advantage over other players in Asia which are mostly naphtha-based. According to a study by Nexant, the cost advantage between leading ethylene producers in the Middle East (similar cost to PCG’s) and a conventional naphtha producer is the approximately US$600/t of ethylene produced over the period between 2004 and 2008, with the peak at US$1,200/t in 2Q08 and trough at US$230/t in 4Q08.

With a lower ethylene cost, PCG is also more competitive than its peers in ethylene derivative products including HDPE, LDPE, PVC and EG. These products account for 35% of our sales revenue forecast for PCG in FY12. This explains the higher profit contribution of olefins and polymer group (5.3 mn t capacity) against other segments of urea and methanol combined (5.8 mn t capacity) (Figure 7, Figure 8)

Core strengths rely on cheap gas feedstock, especially ethane

Cost advantage to naphtha-based producers is estimated at around US$600/t

Lower ethane cost means cost advantage for ethylene derivatives which is ~35% of PCG’s revenue in FY12

15 February 2011



Figure 7: Olefins and polymer group* contributed over

70% of PCG’s profit

Figure 8: Revenue breakdown in 4M10 ending July –

Olefins and polymer group accounted for over 70% of

PCG’s sales revenue

76%59%

79%71%

22%39%

11% 24%

10% 5%3%

2%

0

10

20

30

40

50

60

70

80

90

100

2008 2009 2010 4M10

Olefins and polymers Fertilisers and methanol Others

(%)

76%59%

79%71%

22%39%

11% 24%

10% 5%3%

2%

0

10

20

30

40

50

60

70

80

90

100

2008 2009 2010 4M10

Olefins and polymers Fertilisers and methanol Others

(%)

PVC & VCM

7%

PE

9%

Methanol

9%

Ammonia

3%

Ethy lene

9%

Propy lene

8%Parax y lene

9%

Benzene

3%

EG

6%

Others

16%N-butane

2%

MTBE

6%

Urea

10%

PP

3%

* Olefins and polymer division included olefins and derivatives, PX,

BZ, MTBE, PVC, and others. Year end March.



PCG’s ethane cost is lower than that of PTT Chemical (PTTC.BK, Bt138.5, O [V], TP Bt185), which is the closet comparable gas-based company to PCG. We estimate that PCG’s ethane cost is less than US$200/t compared to PTTCH’s US$450/t. PTTCH has net back pricing formula for its ethane cost paid to PTT (PTT.BK, Bt316, N, TP Bt346). Conceptually, the selling price of ethane should give both PTT and PTTCH enough returns to cover their variable and investment costs before the extra profit is split between the two with the majority of profit going to PTTCH. With the profit sharing formula, PTTCH’s ethane costs are rising with end product prices and always higher than that of PCG.

Costs at discount to market for non-ethane feedstock Unlike ethane prices which are relatively fixed, prices under other feedstock such as methane (for methanol and urea), propane (for propylene) and butane (for MTBE) are determined through an undisclosed formula that are linked to prices quoted in published industry benchmarks. Though it is linked to international prices, we believe that PCG’s cost of gas purchased from Petronas is still at a discount to market prices. For example, PCG pays lower prices for propane and butane, than the published Saudi Aramco delivered propane and butane contract prices. This should result in cost advantage for PP and MTBE.

As for methane, prices are linked to the average of a basket of global urea prices (for urea production) and to a basket of fuel and petrochemical indices (for methanol production). According to Nexant, PCG’s urea production cost is slightly higher than Indonesian producers, and both Malaysian and Indonesian producers have higher costs than those in the Middle East. As for methanol, competitiveness depends mostly on feedstock and shipping costs. PCG is believed to have lower costs than other producers outside Indonesia and the Middle East.

PCG’s ethane cost lower than PTTCH’s gas-based cracker

The cost of non-ethane feedstock is linked, but with a discount, to international indices

PCG’s methanol and urea – at the low end of cost curve

15 February 2011



More leveraged to oil prices than regional peers Higher leverage to oil prices due to relatively fixed ethane costs

With relatively fixed ethane prices, PCG’s earnings are more leveraged to rising oil prices than other oil-exposed companies in the region, including PTTCH (Figure 9). PTTCH’s ethane gas costs are linked to HDPE prices under the net back gas pricing formula, which means that its ethane cost would rise (though at a slower rate) with oil prices. According to our estimate, PCG’s HDPE spread against ethane costs would expand much faster than PTTCH’s. Assuming a US$20/bbl rise in oil price from US$90 to US$110/bbl, PCG’s margins would expand by US$176/t, compared to only US$123/t in at PTTCH (Figure 10).

Figure 9: PCG’s cost is close to M/E average but lower

than PTTCH’s gas-based plants and other naphtha-based

plants in Asia

Figure 10: PCG is more leveraged to rising oil price than

PTTCH as PCG’s PE – ethane spread expanded faster

with fixed ethane costs

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

30 50 70 90 110 130

PTTCH PCG

$170

$440

Source: CMAI Source: Credit Suisse estimates

Compared to other listed O&G companies in the region, PCG’s leverage to oil price is even higher than PTT Exploration & Production (PTTE.BK, Bt167.50, U, TP Bt183), the listed E&P in Thailand. We estimate that for every US$10/bbl increase in oil price, PCG’s EPS will rise by 16% in FY12 (end-March 2012) compared to 11.8% for PTTEP in FY11 (Figure 11). PTTEP’s lower leverage to oil prices is explained by its high portion of gas versus oil and the fact that gas prices are lagging and have only a 30% linkage to oil prices.

Figure 11: Earnings sensitivities to changes in oil prices Oil price (US$/bbl) 75 (%) 85 (base case) (%) 95 (%) 105 (%)

PCG -16.1 0.0 16.1 32.3

PTTCH -11.7 0.0 11.7 23.4

PTTEP -11.8 0.0 11.8 23.6


PCG has more diversified products but is smaller in olefins compared to PTTCH

PCG’s scale is much smaller than the Thai companies including PTTCH and Siam Cement (SCC.BK, Bt298, OUTPERFORM, TP Bt374). PCG has 1 mn t of ethylene compared to PTTCH’s 2.3 mn t and SCC’s 1.7 mn t. (Figure 12) PCG has exposure to wider range of products including PX, BZ, MTBE, and PVC while PTTCH is more concentrated in downstream polyolefins chain. (Figure 13)

Despite PCG’s smaller size, PCG is more profitable than PTTCH and PCG’s earnings are also less volatile than its Thai counterparts. This would be more true after the merger of

More leveraged to rising oil price than PTTCH because of relatively fixed ethane costs

PCG is more leveraged to oil price than PTTCH and PTTEP

PCG’s profit increases by 16% for every US$10/bbl rise in oil price

PCG is smaller in size for olefins products but has wider product exposure

PCG’s earnings are also less volatile

15 February 2011



PTTCH and PTTAR is completed, as PTTAR’s earnings are more volatile due to its large exposure to paraxylene (PX) and the refinery business. (Figure 14, Figure 15)

PCG is one of the biggest players in the region for certain products despite being a medium-sized player in ethylene. Here is the snapshot comparison of its capacity against peers.

■ Largest producer of methanol by volume in SEA, fourth largest in the world.

■ Largest producer of ethylene glycols in SEA.

■ Largest producer of LDPE in SEA based on installed capacity.

■ Third-largest producer of urea in SEA by volume.

Figure 12: PCG’s capacities are smaller than PTTCH and

SCC (‘000 tonnes) – the main difference is PCG’s

exposure to urea and methanol

Figure 13: Operating margins comparison: PCG is more

profitable and less volatile

-

500

1,000

1,500

2,000

2,500

Ethy

lene

Prop

ylen

e

MEG PP BZ PX PE

PVC

PCG PTTCH SCC

-5

0

5

10

15

20

25

30

35

PCG PTTCH PTTAR

Year-end Mar 08 Year-end Mar 09

Year-end Mar 10 6-mnths to Sep 10

(%)

-5

0

5

10

15

20

25

30

35

PCG PTTCH PTTAR


Year-end Mar 10 6-mnths to Sep 10

(%)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 14: Olefins and polymers net profit (US$ mn) –

PCG more profitable in ethylene chain and has more

varieties of products outside olefins group

Figure 15: Net profit comparison (US$ mn)

-

200

400

600

800

1,000

1,200

Year-end Mar 08 Year-end Mar 09 Year-end Mar 10

PCG PTTCH SCC's petrochemical

-400

-200

0

200

400

600

800

1,000

1,200

PCG PTTCH PTTAR


Year-end Mar 10 6 mth to Sep 10

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Largest producer of methanol, EG, and urea in SEA

15 February 2011



Steady growth path PCG is planning to pursue a steady growth strategy. In FY11-12, when the petrochemical cycle is expected to trough, PCG is expected to achieve earnings growth by reaping benefits from the recent reorganisation. Prior to the listing, PCG bought out minority shareholders in its various ventures in the olefins chain and effectively gained control in those operations. Those plants have since been operated as a single resource starting in FY11. This will allow for revenue maximisation by improving plants utilisation (through central planning) and cost reduction by consolidating administrative functions. In the medium term, PCG has a plan to expand its existing facility by increasing output or enhancing efficiency by making changes to the configuration of its production process. From FY13 onwards, we expect margin improvement to drive PCG’s profitability, as margins for all of its product in olefins, methanol and urea are currently at a cyclical low. Longer term, greenfield projects will also be considered.

Reorganisation: Integrating different parts into one Prior to the listing, PCG consolidated its ownership in various affiliates (Figure 16). This included purchasing a stake in companies in the Optimal group from its partner Dow Chemical (DOW, $38.38, O [V], TP $44.00) in October 2009. The transactions increased its stake in Optimal Olefins to 88% and in Optimal Glycols and Optimal Chemicals to 100%. In September 2010, PCG also bought out BP (BP.L, 475.75p, O, TP 585.00p, MARKET WEIGHT), which was a minority shareholder in Ethylene Malaysia, and effectively increased its stake from 72.5% to 87.5%. PCG also bought a 60% stake in Polyethylene Malaysia from BP and increased its stake to 100% in September 2010.

Figure 16: Reorganisation transactions prior to the listing Dates Transactions

Oct-09 Acquired stake in Optimal from Dow and bring all three entities (OPTIMAL olefins, OPTIMAL Glycols, and OPTIMAL chemicals) under PCG control

Sep-10 Acquired minority stake in Ethylene Malaysia from BP and increase control from 72.5% to 87.5%. Also acquired 60% stake of Polyethylene Malaysia to become a wholly-owned subsidiary.

26-Nov-10 Started trading in the Bursa Malaysia


Following the reorganisation, PCG hopes to maximise its revenue and increase flexibility through the integration of operations and management. Unlike before, the plants are now centrally managed, allowing for optimal coordination of operations of all product facilities. Feedstock and other resources allocation are now better coordinated among PCG’s facilities. In order to minimise disruptions, plans of different units are synchronised to schedule to manage plant turnarounds, capacity improvement and maintenance projects.

After the reorganisation, the two IPCs have been integrated and operate as a single resource. The admin functions have been consolidated in one centralised corporate head office and economy of scale achieved in procurement through bulk purchases. Management expects to see SG&A reduction of 20% from the successful implementation of the plan.

The reorganisation – consolidating different operations under one firm

Buying stakes from foreign partners

Revenue enhancement ...

... and cost reduction

15 February 2011



Growth beyond the reorganisation Figure 17: PCG’s growth strategy summary Time frame Strategies

Short term To achieve overall utilisation rate of 90% with biggest potential increase at Labuan methanol plant

Cost reduction from the Reorganisation

Medium term Capacity increase through efficiency improvement

Acquisition opportunity evaluated

Long term Studying a plan to build greenfield ammonia and urea facility in East Malaysia

New petrochemical complex if Petronas Group decides to invest in greenfield refinery complex in Malaysia


Short-term plan: Higher utilisation

PCG plans to ramp up utilisation rates. This is also one of the benefits of business reorganisation. Management believes that the integration would improve the integrated planning and overall run rates for its plants, as these plants were previously run under different joint venture partners and shareholders. Management has set the overall utilisation target at 90% and expects to achieve its target from FY11 onwards. In our assumptions, we assume the overall utilisation rates of all of its plants at 93% (Figure 18).

PCG has started its new 1.66 mn t methanol plant in Labuan, the largest plant in Asia, in January 2009. The plan is to ramp up production to over 90% in FY11-12. As such, its methanol plant at Labuan would be the source of growth in FY11-12 (Figure 19).

Figure 18: Utilisations at PCG’s key plants Figure 19: Methanol production (‘000 tonnes)

75

80

85

90

95

100

FY08 FY09 FY10 FY11E FY12E FY13E FY14E

Olefins and poly mer group Urea and methanol

(%)

-

500

1,000

1,500

2,000

2,500

FY08 FY09 FY10 FY11E FY12E

The decline in operating rates at methanol plants reflect the startup of

a new 1.66 mn t plant which is yet to run at full capacity



Medium and long-term growth plans: Capacity expansion

PCG has set medium and long-term growth plans through capacity expansions either by organic growth or acquisition. As for organic growth, PCG has a plan to increase output or enhance efficiency at its existing plants by making changes to the configuration of its production process. This would include growth horizontally by expanding the product portfolio. Also, PCG is seeking acquisition opportunities where appropriate.

PCG is also studying the possibility of developing a world-scale, greenfield ammonia and urea production facility that would be supplied with natural gas feedstock off the coast of

From the short-term plan of raising utilisation rates to a long-term plan of building a new complex

Improving utilisation rate with better integrated planning

Ramping up the methanol plant at Labuan

Increasing capacity through efficiency improvement and, potentially, acquisitions

Studying a plan to build greenfield ammonia and urea facility in East Malaysia

15 February 2011



East Malaysia. The project is now in the pre-feasibility study phase and PCG expects to make a final decision on this in FY12.

Petronas Group is studying a greenfield project to develop an integrated refinery and petrochemical complex in Malaysia with international partners. Naphtha output would be used for petrochemical production. If the project gets a go-ahead, PCG is expected to invest in the naphtha-based petrochemical complex. The timing of the project is still unclear. We estimate that if the decision is made today, completion would be in 2015 at the earliest.

Brand new opportunity if Petronas Group builds a new refinery and petrochemical complex

15 February 2011



Initiate with OUTPERFORM Our forecast of PCG’s average annual growth rate of earnings during FY11-13 of 18.1% is above the expected growth of its regional peers of between 0.6% and 8.5%. Its earnings growth is expected to be driven by improving efficiency during FY11-12, while the recovery of ethylene cycle is expected to drive its earnings beyond 2012. On valuation, though PCG’s current valuation is at par with its regional peers, we see upside bias to its share price. Relative to the Malaysian market, PCG looks attractively valued based on its premium ROE and a higher prospective dividend yield. Our target price of RM7.50 is based on DCF which assumes ethane prices are doubled after the agreements expire in 2016 and 2023. Our RM7.50 target price implies P/B and P/E of 2.8x and 17.5x on FY12E, respectively. We initiate coverage on PCG with an OUTPERFORM rating.

Superior earnings growth profile Our forecast of PCG’s average annual growth rate of earnings during FY11-13 of 18% is above the expected growth of its regional peers by between 0.6% and 8.5%. Its earnings growth is expected to be driven by improving efficiency during FY11-12, while the recovery of the ethylene cycle is expected to drive its earnings beyond 2012. PCG’s earnings growth could be achieved with relatively small capex as it will be driven by efficiency improvement in the initial stages before the recovery of petrochemical cycle. PCG is guiding a maintenance capex of RM700 mn annually.

Figure 20: Impact of changes in earnings assumptions to PCG’s FY12 earnings Current Net profit % change EPS P/E

Units assumptions (RM mn) from base (RM) (x)

Base case 3,426 0.43 14.2

RM (5% appreciation) RM/US$ 3.06 3,126 -8.8 0.39 15.6

Oil price (+ US$10/bbl) US$/bbl 85 3,980 16.1 0.50 12.3

Ethane cost (+ 10%) US$/t 161 3,390 -1.1 0.42 14.4

HDPE-naphtha spread (+ US$100/t) US$/t 466 3,526 2.9 0.44 13.8

PX-naphtha spread (+ US$100/t) US$/t 500 3,535 3.2 0.44 13.8

EG-ethylene spread (+ US$100/t) US$/t 350 3,505 2.3 0.44 13.9

PP-naphtha spread (+ US$100/t) US$/t 566 3,441 0.4 0.43 14.2

Methanol price (+ US$100/t) US$/t 306 3,628 5.9 0.45 13.5

Urea price (+ US$100/t) US$/t 377 3,631 6.0 0.45 13.4


We expect margins of all of PCG’s products to improve from the current level with the exception of paraxylene, which may see a short-term correction. Margins in ethylene and its derivatives are expected to stay at a cyclical low for the next 6-9 months before peaking in 2014-15 as global capacity expansion is limited over the next few years. Margins in the propylene chain are holding up well in 2010-11 and should also expand as demand improves and capacity addition is limited. Nexant, a petrochemical consultant, expects margins of urea and methanol to also recover to peak levels in 2015.

Earnings growth higher than peers

PCG’s earnings are sensitive to oil price due to its relatively fixed ethane costs

Margins of almost all of PCG’s products are on a recovery trend

15 February 2011



Figure 21: Margin outlook by products FY12E FY13E-15E

Ethylene !" # Propylene !" # PVC & VCM !" !" Paraxylene $ !" Benzene !" !" EG # # PE !" # Urea # # Methanol # # Source: Credit Suisse estimates

Figure 22:Urea price FOB M/E spot (US$/t) – margins

should start to improve

Figure 23: Methanol CFR China (US$/t) – Nexant expects

margins to peak in 2015

0

100

200

300

400

500

600

700

800

1Q05

4Q05

3Q06

2Q07

1Q08

4Q08

3Q09

2Q10

1Q11

QTD

0

50

100

150

200

250

300

350

400

450

500

2Q04 1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 2Q10 1Q11

Source: Bloomberg, Credit Suisse estimates Source: Bloomberg, Credit Suisse estimates

Figure 24: HDPE-naphtha spread (US$/t) – at the trough of

cycle and expected to recover in 2012 to peak at closer to

US$700/t in 2015

Figure 25: Polypropylene (PP)-naphtha spread (US$/t) –

holding up stronger than PE spread as limited PP supply

addition globally

300

400

500

600

700

1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11*

HDPE-naphtha

300

400

500

600

700

800

900

1Q07 4Q07 3Q08 2Q09 1Q10 4Q10

Source: Thompson Reuters, Credit Suisse estimates Source: Thompson Reuters, Credit Suisse estimates

Margins of ethylene and its derivative products are likely to trough in 2011 and expected to peak in 2015

15 February 2011



Figure 26: MEG spread with ethylene (US$/t) – recent

recovery driven by strong demand in polyester chain

Figure 27: Paraxylene and benzene margins vs naphtha

(US$/t) – PX prices may have short-term downside

-100

-

100

200

300

400

500

600

700

800

1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11QTD

-50

50

150

250

350

450

550

650

750

1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11*

Benzene-naphtha PX-naphtha

Source: Thompson Reuters, Credit Suisse estimates Source: Thompson Reuters, Credit Suisse estimates

Biggest and most liquid oil exposure in Malaysia Though PCG’s current valuation is at par with its regional peers, we see upside bias to its share price. PCG’s earnings growth momentum is expected to be superior to its regional peers. PCG’s two-year earnings CAGR is 18% compared to 0.6-8.5% for its peers. Improvement is expected to be due to higher utilisation and better planning efficiency after consolidation. Beyond FY12, we expect growth to be driven by recovery of the ethylene cycle.

Within the Malaysian market, PCG is the largest and most liquid stock with exposure to the oil and gas sector, which is pivotal to the government’s Economic Transformation Programme (ETP). The ETP appears to be gaining momentum preparing for PM Najib to win a convincing mandate in the next General Elections. The government has announced incentives for the oil and gas sector, providing positive news flow to continue driving up share prices, which should kick-start more investments in the sector. Though we do not see direct benefits from these incentives to PCG, we expect that growing interest of investors in the oil and gas sector would warrant share price rerating given PCG’s size and liquidity.

Relative to the Malaysian market, PCG is attractively valued based on its premium ROE and higher dividend yield. We estimate PCG to generate ROE of 16.8% compared to the market average of 13.9%. Based on a stated dividend policy of 50%, PCG’s dividend yield is 3.5% compared to the market average of 2.8%. PCG is also trading at a discount to the market on P/E. On P/B, PCG is valued at par with the market.

PCG’s valuation at par with regional peers but with upside bias

The biggest and the most liquid stock in Malaysia that has exposure to the oil and gas sector

Attractive valuation based on Malaysian peers

15 February 2011



Figure 28: PCG remains attractive on P/E against its two-

year earnings CAGR

Figure 29: PCG’s valuation and return are attractive

against Malaysian stock market

PCG

Reliance

Industries

LG Chem

HonamHanwha

Far Eastern

FPCC

FCFC

Nan YaFormosa

Plastics

10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

-5.0 0.0 5.0 10.0 15.0 20.02-year CAGR (%)

P/E

15.3 15.8

2.2

13.9

2.8

14.0

19.7

2.2

16.8

3.6

0

5

10

15

20

25

P/E (x ) EPS grow th

(%)

P/B (x ) ROE (%) Div idend y ield

(%)

Malay sia market PCG*

* PTTCH is excluded due to the planned merger deal.


* PCG’s valuation is based on FY12E which ends in March 2012 while

market is based on FY11E. Source: Credit Suisse estimates

Figure 30: One of the most liquid stocks in Malaysia with

average daily turnover of over US$30 mn

Figure 31: Among top-five largest companies in Malaysia

by market cap (US$ bn)

38.2 37.033.7

23.8 22.5 21.619.6 19.0

15.712.7

-

5

10

15

20

25

30

35

40

45

CIM

B

Sim

e D

arby

PCG

Mal

ayan

Ban

king

Axia

ta

Gen

ting

IOI

AMM

B

Tena

ga N

asio

nal

Publ

ic B

ank

20.5 19.918.3

15.8 15.013.7 13.2 12.4 12.1 12.0

-

5

10

15

20

25M

alay

an B

anki

ng

CIM

B

Sim

e D

arby

PCG

Publ

ic B

ank

Axia

ta

Max

is

Gen

ting

IOI

MIS

C

Source: Bloomberg, Credit Suisse estimates Source: Bloomberg, Credit Suisse estimates

After the planned merger of PTTCH and PTTAR is completed, PCG would hold a unique position as the only listed gas-based petrochemical company in Asia with better leverage to oil price and superior ROE. Relative to PCG, the merged company between PTTCH and PTTAR is expected to be more diversified. Also, earnings volatility of the consolidated entity is expected to be higher than the standalone operation of PTTCH, which has pure exposure to the gas-based business. PCG’s premium ROE to PTTCH should also expand as the consolidation of PTTCH and PTTAR is expected to dampen the consolidated ROE, with higher amortisation expense and lower ROE of PTTAR.

PCG would be less diversified than the merged entity between PTTCH and PTTAR

15 February 2011



Figure 32: Third largest by market cap compared to other

major listed O&G and chemical stocks in Thailand (US$

bn)

Figure 33: PCG would give clearer exposure to oil price

than the merged company between PTTCH+PTTAR which

gives mix exposure of ethylene/aromatics/refinery

29.6

17.715.7

10.4

6.8

3.6

-

5

10

15

20

25

30

35

PTT PTTEP PCG PTTTCH+PTTARPTTCH PTTAR

-

500

1,000

1,500

2,000

2,500

Ethy

lene

Prop

ylen

e

MEG PP BZ PX PE

PVC

Ref

iner

y*

PCG PTTCH + PTTAR

Source: Thompson Reuters, Bloomberg, Credit Suisse estimates * Refinery in kbd. Source: Company data, Credit Suisse estimates

We set our target price at RM7.50, implying 25% upside from the current share price. Our target price is based on DCF valuation assuming that ethane cost is doubled due to price adjustment with Petronas once the agreements expire in 2016 and 2023. Our estimate of PCG’s WACC is 9.6% based on cost of equity of 11.8% and long-term debt to total capital of 25%. At our target price of RM7.50, PCG would be valued at P/B and P/E on FY12E of 2.8x and 17.5x, respectively, compared to regional peers’ P/B of 2.2x and P/E of 14x during the same period. We initiate on PCG with an OUTPERFORM rating.

Figure 34: PCG's DCF valuation DCF (RM mn) 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

EBITDA 6,210 6,353 6,879 6,863 6,567 6,547 6,527 6,077

Less tax on EBIT 1,257 1,295 1,425 1,424 1,354 1,351 1,347 1,240

Less capex 721 743 765 788 811 836 861 887

Free cash flow 4,233 4,315 4,690 4,652 4,401 4,360 4,319 3,951

Sum of PV 21,834

Terminal value 31,714

EV 53,548

Less FY12E net debt (cash) (6,625)

Equity value 60,173

Equity value per share 7.5


DCF target of RM7.50 assumes ethane price doubled at contract expirations

15 F

ebru

ary 2011

Petro

nas C

hem

icals Gro

up

Regional valuation table Figure 35: Regional valuations comparison table Up Mkt EPS P/E P/B Div. yield EV/EBITDA ROIC ROE

Price TP side cap growth (%) (x) (x) (%) (x) (%) (%)

Company Ticker Rat FX (local) (local) (%) US$ mn 11E 12E 11E 12E 11E 12E 11E 12E 11E 12E 11E 12E 11E 12E

Formosa Plastics 1301.TW N TWD 101.0 91.1 -10 21,089 -4 5 14.0 13.3 2.4 2.3 5.7 6.0 17.3 16.7 10 9 18 18

Nan Ya Plastics 1303.TW O TWD 79.7 94.8 18.9 21,600 37.6 1.8 11.1 10.9 2.1 2.0 7.6 7.8 14.5 15.7 9.9 8.5 19.6 18.9

FCFC 1326.TW O TWD 102.0 126.2 24 19,800 14 0 10.7 10.7 2.2 2.1 7.9 8.0 12.0 12.6 13 11 21 20

FPCC 6505.TW U TWD 91.0 76.0 -16 29,571 -9 15 23.1 20.1 3.6 3.4 3.5 4.0 13.1 11.7 9 10 16 17

Far Eastern 1402.TW N TWD 47.5 41.7 -12 7,704 0 -2 18.4 18.8 2.2 2.2 4.1 4.0 68.8 99.1 1 1 12 12

Average Taiwan 3 4 16.0 15.2 2.5 2.4 5.5 5.7 15.7* 15.5* 8 7 17 17

Hanwha Chemical 009830.KS U KRW 35,000.0 26,000.0 -26 4,358 -4 11 11.4 10.2 1.4 1.3 1.3 1.3 11.2 10.9 9 9 13 13

Honam Petrochem 011170.KS N KRW 335,000.0 310,000.0 -7 9,473 11 6 11.9 11.2 2.0 1.7 0.5 0.6 10.6 9.6 11 11 18 17

LG Chem 051910.KS O KRW 370,000.0 450,000.0 22 21,764 15 8 10.5 9.7 2.6 2.1 0.9 0.9 7.2 6.5 23 22 28 24

Average Korea 7 9 11.2 10.4 2.0 1.7 0.9 0.9 9.7 9.0 14 14 20 18

Reliance Industries RELI.BO O INR 910.8 1,181.0 30 65,345 -17 22 14.7 12.0 2.0 1.8 1.0 1.7 9.3 7.1 9 17 14 16

PTTCH PTTC.BK O THB 138.5 185.0 34 6,812 75 12 11.9 10.6 1.8 1.6 4.2 4.7 8.5 7.6 13 14 16 16

Petronas Chemical** PCGB.KL O MYR 6.0 7.5 25 15,748 20 17 14.0 12.0 2.2 2.0 3.6 4.2 7.3 6.3 23 27 17 18

Average Asia 10 9 14.0 12.9 2.2 2.1 3.5 3.8 16.9 19.0 12 12 17 17

* EBITDA calculation excluding Far Eastern

**Based on 2012E and 2013E numbers as its fiscal year ends in March.


15 February 2011



Risks Ethane price renegotiation

PCG’s feedstock supply contracts with the Petronas Group companies contain clauses providing that if there is a substantial change in circumstances that seriously prejudices or is expected to seriously prejudice either party, either party can require both parties to consult together to determine whether and what revision to the terms and conditions of the contract is necessary. We understand that the last time that ethane price (sold to Ethylene Malaysia) was adjusted is in September 2001

Risk of cost increase for PCG is at its two ethane feedstock agreements which are due to expire in 2016 and 2023. Prices of other gas feedstock including methane, propane, and butane have been raised earlier. Ethane is the most important feedstock for PCG as products from the ethylene value chain are the largest contributor to PCG’s revenue and profit. Ethane prices sold to PCG by the Petronas Group companies are close to cost of producers in the Middle East but lower than the price PTTCH paid to PTT. We estimate the cost of ethane for PTTCH of around US$450/t, at least US$250/t higher than PCG’s of less than US$200/t.

Effective 1 August 2008, Petronas Group adjusted the pricing terms under the supply agreement for methane, butane and propane for some of PCG’s subsidiaries. The negotiation process had started since the supply agreement expired in October 2005 but only became effective in August 2008. The changes brought the price policy to be in-line with the government of Malaysia’s overall policy of gradually phasing out the discounted gas prices available to various sectors of the economy.

Gas supply risks

PCG does not purchase natural gas or processed gas feedstock from any other suppliers except Petronas, while PCG is also the only company to which the Petronas Group supplies gas feedstock for petrochemicals production. Petronas Group supplies the requirement of PCG’s ethane, propane, methane, butane and heavy naphtha feedstock. If there are material interruptions in supply from the Petronas Group, PCG’s production rate would get affected. Based on Petronas Gas (PGAS.KL, RM11.04, Not Rated) data, natural gas output from domestic gas field has been on the downtrend.

Stronger Malaysian ringgit hurting PCG’s profitability

PCG’s revenue and major part of its costs are denominated in USD. For FY10, 57% of PCG’s revenue was denominated in USD. Appreciation of the RM against the USD may materially and adversely affect its profitability. We estimate that for every 1% appreciation in RM, PCG’s profit would fall by 1.6% in FY12.

Legally, prices could be adjusted even before the contracts expire

Risk is in ethane of which contracts are due to expire in 2016 and 2023

Prices of methane, propane and butane have been raised earlier

Gas availability from Petronas

PCG’s profit down 1.6% for every 1% appreciation in MYR

15 February 2011



Financials Figure 36: Profit and loss statement Year-end 31 Mar (RM mn) FY09 FY10 FY11E FY12E FY13E

Revenue 12,367 12,203 13,261 14,916 15,757

Cost of revenue 7,500 8,561 8,817 9,558 9,796

Gross profit 4,867 3,642 4,443 5,358 5,961

Selling and distribution expenses 335 351 435 492 520

Administration expenses 320 318 433 390 410

Other expenses 111 127 110 111 112

Other income 342 403 324 308 317

Operating profit 4,443 3,249 3,789 4,673 5,236

Financing costs 57 62 108 137 101

Profit before tax 4,386 3,187 3,681 4,536 5,135

Tax expense 962 774 994 1,089 1,232

Equity income 25 181 429 260 410

Profit after tax 3,449 2,594 3,116 3,708 4,313

Minority interests 631 395 254 281 318

Recurring profit 2,818 2,199 2,862 3,426 3,994

Extraordinary items - - - - -

Reported profit 2,818 2,199 2,862 3,426 3,994

Core EPS (RM/sh) 2,818 2,199 0.36 0.43 0.50

Reported EPS (RM/sh) 2,818 2,199 0.36 0.43 0.50

EBITDA 5,130 4,145 4,806 5,667 6,210


Figure 37: Balance sheet Year-end 31 Mar (RM mn) FY09 FY10 FY11E FY12E FY13E

Cash and cash equivalents 7,081 7,532 8,157 9,986 10,904

Fund and other investments 139 25 25 25 25

Trade and other receivables and inventories 2,186 3,468 3,222 3,573 3,731

Others current assets 251 212 212 212 212

Total current assets 9,657 11,237 11,616 13,796 14,872

Investments in associates 2,060 929 1,110 1,374 1,788

Long-term receivables 55 32 30 30 30

Property, plant and equipment 11,121 12,992 12,975 12,681 12,428

Others non-current assets 341 1,702 2,500 2,450 2,402

Total non-current assets 13,577 15,655 16,615 16,535 16,648

Total assets 23,234 26,892 28,231 30,331 31,520

Trade and other payables 2,896 4,734 1,691 1,833 1,879

Borrowings 745 623 447 600 600

Other current liabilities 61 38 298 327 370

Total current liabilities 3,702 5,395 2,436 2,760 2,848

Borrowings 586 1,254 3,261 2,761 1,261

Other long-term liabilities and provisions 1,101 1,167 1,500 1,500 1,500

Other non-current liabilities 27 28 28 28 28

Total non-current liabilities 1,714 2,449 4,789 4,289 2,789

Total liabilities 5,416 7,844 7,225 7,049 5,637

Minority interest 2,082 1,979 1,595 1,876 2,195

Total shareholder's equity 15,736 17,069 19,411 21,407 23,688


15 February 2011



Figure 38: Cash flow statement Year-end 31 Mar (RM mn) FY09 FY10 FY11E FY12E FY13E

Net income 2,818 2,199 2,862 3,426 3,994

Non-cash items 477 612 204 1,015 883

Cash net income 3,295 2,811 3,066 4,442 4,877

Changes in working capitals 1,772 686 (2,537) (180) (69)

Cash flow from operating activities 5,067 3,497 529 4,262 4,808

Capex (1,241) (2,767) (1,000) (700) (721)

Investment 112 (26) (548) 46 45

Change in other liabilities 344 67 333 - -

Cash flow from investing activities (785) (2,726) (1,215) (654) (676)

Free cash flow 4,282 771 (686) 3,607 4,131

Increase (decrease) in debt (191) 546 1,831 (347) (1,500)

Capital increase 847 1,332 3,570 - -

Dividend payment (1,962) (2,196) (2,781) (1,431) (1,713)

Equity adjustment (856) (2) (1,309) - -

Cash flow from financing (2,162) (320) 1,311 (1,778) (3,213)

Change in cash 2,120 451 625 1,829 918


Figure 39: Key ratios (%, unless indicated otherwise) FY09 FY10 FY11E FY12E FY13E

Sale growth -3.8 -1.3 8.7 12.5 5.6

Gross profit growth -23.4 -25.2 22.0 20.6 11.2

Operating profit growth -25.1 -26.9 16.6 23.3 12.1

EBITDA growth -21.8 -19.2 16.0 17.9 9.6

Net profit growth -28.2 -22.0 30.2 19.7 16.6

Gross profit margin 39.4 29.8 33.5 35.9 37.8

Operating profit margin 35.9 26.6 28.6 31.3 33.2

EBITDA margin 41.5 34.0 36.2 38.0 39.4

Net profit margin 22.8 18.0 21.6 23.0 25.4

Asset turnover (x) 0.55 0.49 0.48 0.51 0.51

EBIT/EBITDA (x) 0.87 0.78 0.79 0.82 0.84

ROA 19.7 13.4 14.9 16.4 17.9

ROE 18.4 13.4 15.7 16.8 17.7

Debt/equity (x) 0.08 0.11 0.19 0.16 0.08

Net debt/equity (x) Net cash Net cash Net cash Net cash Net cash

Current ratio (x) 2.61 2.08 4.77 5.00 5.22

Interest coverage (x) 73.19 77.95 52.40 35.10 34.20


15 February 2011



Appendix 1: Production facilities PCG operates plants in five facilities in Malaysia including Kertih (focus on ethane-related products), Gebeng (focus on propane and butane-related products, and other three locations in Labuan, Gurun and Bintulu for methanol and urea products.

Separately, PCG also owns and operates a PVC plant in Vung Tau, Vietnam.

Its total capacity in olefins and polymers is 5.3 mn t and in fertilisers and methanol is 5.8 mn t.

PGU pipeline network supplying gas to olefins facilities in Kertih and Gebeng

Petronas Gas has processed natural gas sourced at the offshore Terengganu fields and processing and transmitting piped gas to end-users in various sectors in Peninsular Malaysia via its PGU pipeline system. The system has combined capacity of 2,060 mmscfd. PGS’s facilities in Peninsular Malaysia at Kertih and Gebang receives their gas feedstock through the PGU pipeline system.

The Kertih Integrated Petrochemical Complex (IPC) focuses mainly on ethane-related products including ethylene, HDPE, LLDPE , LDPE, VCM, PVC, and MEG. There is also an aromatics plant in the Kertih IPC that producers benzene and paraxylene by using heavy naphtha feeding through another dedicated pipeline directly from the oil refinery operated by Petronas Penapisan. In the same complex, Petronas operates 6 GPPs and one oil refinery.

As for supporting infrastructure at Kertih IPC, PCS owns port on site. Utilities are managed/owned/operated by Petronas Gas under a long-term contract. Water is supplied by another Petronas’s subsidiary.

The Gebeng IPC, located further south from Kertih, focuses mainly on propane and butane-related products, including propylene, polypropylene and MTBE. The Gebeng IPC also includes production facilities operated by JV with BASF that produce acrylic acids, oxo-alcohols, and butanediol products.

Both IPCS linked to the Kuantan port by a railway line owned and operation by Petronas group.

As for supporting infrastructure at Gebeng IPC, utilities are managed/owned/operated by Petronas Gas under long term contract. Water is managed by local water authority based on applicable tariffs rates

For methane-related products including methanol, ammonia, and urea, the facilities are located in Gurun in Peninsular Malaysia and Labuan and Bintulu in Eastern Malaysia. The plants at Labuan, the biggest 2.3 mn t methanol plant, receives its natural gas feedstock from several gas fields off the coast of Sabah. Its plants at Gurun receives natural gas from Kertih and MTJDA while plants at Bintulu receives gas off the coast in Borneo.

15 February 2011



Figure 40: Capacity at Kertih IPC Nameplate

capacity

Plant Company Product ('000 tpa) Shareholders

Ethylene

Ethane/propane cracker Optimal Olefins Ethylene 600.0 PCG (88%), Sasol (12%)

Propylene 84.7

Ethane cracker Ethylene Malaysia Ethylene 400.0 PCG (87.5%, Idemitsu Kosan (12.5%)

Ethylene derivatives

VCM Vinyl Chloride (Malaysia) VCM 400.0 PCG (100%)

PVC Vinyl Chloride (Malaysia) PVC 180.0 PCG (100%)

Ammonia/oxogas Petronas Ammonia Ammonia 450.0 PCG (100%)

Oxogas 435.7

Carbon monoxide 246.7

Ethylene oxide, ethylene glycol Optimal Glycols Ethylene oxide 385.0 PCG (100%)

Ethylene glycols 380.0

Ethylene derivatives Optimal Chemicals Ethoxylates 30.0 PCG (100%)

Ethanolamines 75.0

Glycol ethers 60.0

Butanol 140.0

Butyl acetate 50.0

Nonylphenol ethoxylates 30.0

Polyethylene glycol 15.0

Polyalkaline glycol 10.0

Low density polyethylene Petlin LDPE 255.0 PCG (60%), Sasol (40%)

Polyethylene Polyethylene Malaysia HDPE/LLDPE 240.0 PCG (100%)

Aromatics

Aromatics (paraxylene and benzene) Aromatic Malaysia Paraxylene 500.0 PCG (70%), MJPX (30%)

Benzene 187.7

Pipe-grade compound 60.0

Acetic acid BP, Petronas, Acetyls Acetic Acid 500.0 PCG (30%), BP Holdings (70%)


Figure 41: Gebeng IPC Nameplate

capacity


MTBE MTBE Malaysia MTBE 300.0 PCG (100%)

Propylene 80.0

N-Butane 135.0

Propate dehydrogenation MTBE Malaysia Propylene 300.0 PCG (100%)

Polypropylene Polypropylene Malaysia Polypropylene 80.0 PCG (100%)

Acrylics complex BASF, Petronas Chemical Crude acrylic acid 160.0 PCG (40%), BASF Nederland (60%)

Glacial acrylic acid 40.0

Butyl acrylate 100.0

2-ethyl hexyl acrylate 70.0

Oxo-alcohols/syngas complex BASF, Petronas Chemical 2-ethythexanol 135.0 PCG (40%), BASF Nederland (60%)

Phthalic anhydride 40.0 PCG (40%), BASF Nederland (60%)

Palatinol AH 100.0

Butanols 165.0

Butanediol complex BASF, Petronas Chemical Butanediol 100.0 PCG (40%), BASF Nederland (60%)


15 February 2011



Figure 42: Other facilities in Labuan, Bintulu, Gurun, and others Nameplate

capacity


Labuan Methanol complex

Labuan Methanol Plant 1 Petronas Methanol Methanol 666.0 PCG (100%)

Labuan Methanol Plant 2 Petronas Methanol Methanol 1,665.0 PCG (100%)

Other Petrochemical Operations

Bintulu Urea/Ammonia Complex ASEAN Bintulu Fertilizer Urea 750.0 PCG (63.47%), Ministry of Finance Thailand (13%), The Republic of Indonesia (13%), National Development Company of the Philippines (9.53%), Temasek (1%)

Ammonia 450.0

Gurun Urea/Ammonia Complex Petronas Fertilizer Methanol 66.7 PCG (100%)

Ammonia 400.0

Urea 683.0

Vung Tau PVC Plant in Vietnam Phu My PVC 100.0 PCG (93.1%), Vung Tau Shipyard (6.89%)

Pasir Gudang styrene monomer plant Idemitsu SM Styrene monomer 240.0

NPK Fertilizer plant Malaysia NPK Fertilizer NPK 310.0 PETRONAS Fertilizer (20%), National Farmers Organisation (80%)


15 February 2011



Figure 43: Production facilities

Gurun:-Methanol-Ammonia-Urea

Gebeng IPC: Propane and Butane focused-MTBE & Propylene- Polypropylene- Acrylics, Oxo-alcohols, Butanediol

Pasir Gudang: Styrene monomer

Bintulu

Labuan

East Malaysia: Methane Focused-Methanol-Ammonia-Urea

Kertih IPC: Ethane focused- Ethylene- Benzene & Paraxylene- VCM & PVC- Propylene- Ammonia, Carbon Monoxide & Oxogas- Ethylene Glycols- Acetic AcidButanol, Ethanolamines, etc.

Phu My:

- PVC

Gurun:-Methanol-Ammonia-Urea

Gebeng IPC: Propane and Butane focused-MTBE & Propylene- Polypropylene- Acrylics, Oxo-alcohols, Butanediol

Pasir Gudang: Styrene monomer

Bintulu

Labuan

East Malaysia: Methane Focused-Methanol-Ammonia-Urea

Kertih IPC: Ethane focused- Ethylene- Benzene & Paraxylene- VCM & PVC- Propylene- Ammonia, Carbon Monoxide & Oxogas- Ethylene Glycols- Acetic AcidButanol, Ethanolamines, etc.

Phu My:

- PVC

Source: Company data

15 February 2011



Appendix 2: Company background Corporate structure Figure 44: Corporate structure

PETRONAS

PCG Group

Other subsidiaries and associates

MTBEMalaysia

PolypropyleneMalaysia

VinylChloride

(Malaysia)

OPTIMALChemicals

OPTIMAL Glycols

PolyethyleneMalaysia

PETRONASMethanol

PETRONASAmmonia

PETRONASFertilizer

MITCO KertihPort

KertihTerminals

PETLIN EthyleneMalaysia

AromaticsMalaysia

Phu My OPTIMALOlefins

BASFPETRONASChemicals


ASEANBintulu

Fertilizer

BPPETRONAS

Acetyls

MalaysianNPK

Fertilizer

69%

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

60% 87.5% 70% 93.11% 88%

40% 30%

63.47%

30% 20% 40%

Olefins and polymers business segmentFerti lisers and methanol

business segment

(3) (2) (2)

(1)(1)(1)(1)(1)(1)

(2) (2)

PETRONAS

PCG Group

Other subsidiaries and associates

MTBEMalaysia

PolypropyleneMalaysia

VinylChloride

(Malaysia)

OPTIMALChemicals

OPTIMAL Glycols

PolyethyleneMalaysia

PETRONASMethanol

PETRONASAmmonia

PETRONASFertilizer

MITCO KertihPort

KertihTerminals

PETLIN EthyleneMalaysia

AromaticsMalaysia

Phu My OPTIMALOlefins



ASEANBintulu

Fertilizer

BPPETRONAS

Acetyls

MalaysianNPK

Fertilizer

69%

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

60% 87.5% 70% 93.11% 88%

40% 30%

63.47%

30% 20% 40%

Olefins and polymers business segmentFerti lisers and methanol

business segment

(3) (2) (2)

(1)(1)(1)(1)(1)(1)

(2) (2)

(1) Partly owned subsidiaries (2) Associates (3) Jointly controlled entity.

Source: Company data

History Figure 45: Major events Year Events

1985 Started producing 0.5 mn t of fertiliser products

1995 Began first ethylene production under 72.5%-owned Ethylene Malaysia

2002 Optimal companies commenced operations as JV with Dow Chemical

2009 Acquired stake in Optimal from Dow and bring all three entities (OPTIMAL olefins, OPTIMAL Glycols, and OPTIMAL chemicals) under PCG control

2009 1.665 mn t methanol plant in Labuan commenced operations

Sep-10 Acquired minority stake in Ethylene Malaysia from BP and increased control from 72.5% to 87.5%

26-Nov-10 Started trading in the Bursa Malaysia


15 February 2011



Companies Mentioned (Price as of 11 Feb 11) BP (BP.L, 475.75 p, OUTPERFORM, TP 585.00 p, MARKET WEIGHT) Dow Chemical Company (DOW, $38.38, OUTPERFORM [V], TP $44.00) Far Eastern New Century Corporation (1402.TW, NT$47.50, NEUTRAL, TP NT$41.70) Formosa Chemical & Fibre (1326.TW, NT$102.00, OUTPERFORM, TP NT$126.20) Formosa Petrochemical (6505.TW, NT$91.00, UNDERPERFORM, TP NT$76.00) Formosa Plastics (1301.TW, NT$101.00, NEUTRAL, TP NT$91.10) Hanwha Chemical (009830.KS, W35,000, UNDERPERFORM [V], TP W26,000) Honam Petrochemical (011170.KS, W335,000, NEUTRAL [V], TP W310,000) LG Chem Ltd. (051910.KS, W370,000, OUTPERFORM, TP W450,000) Nan Ya Plastics (1303.TW, NT$79.70, OUTPERFORM, TP NT$94.80) Petronas Chemicals Group BHD (PCGB.KL, RM6.01, OUTPERFORM, TP RM7.5) Petronas Gas (PGAS.KL, RM11.04) PTT Chemical PLC (PTTC.BK, Bt138.50, OUTPERFORM [V], TP Bt185.00) PTT Exploration & Production (PTTE.BK, Bt167.50, UNDERPERFORM, TP Bt183.00) PTT Public Company Limited (PTT.BK, Bt316.00, NEUTRAL, TP Bt346.00) Reliance Industries (RELI.BO, Rs910.75, OUTPERFORM, TP Rs1181.00) Siam Cement (SCC.BK, Bt298.00, OUTPERFORM, TP Bt374.00)

Disclosure Appendix Important Global Disclosures Paworamon (Poom) Suvarnatemee, CFA & Puchong Kometsopha each certify, with respect to the companies or securities that he or she analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

See the Companies Mentioned section for full company names. 3-Year Price, Target Price and Rating Change History Chart for PCGB.KL PCGB.KL Closing

Price Target

Price

Initiation/ Date (RM) (RM) Rating Assumption

0

1

2

3

4

5

6

7

8

16-Feb-0

8

16-Apr-

08

16-Jun-0

8

16-Aug-08

16-O

ct-08

16-D

ec-08

16-Feb-0

9

16-Apr-0

9

16-Jun-0

9

16-Aug-0

9

16-O

ct-09

16-Dec-0

9

16-Feb-10

16-Apr-

10

16-Jun-10

16-Aug-10

16-Oct-1

0

16-Dec-1

0

Closing Price Target Price Initiat ion/Assumption Rating

RM

O=Outperform; N=Neutral; U=Underperform; R=Restricted; NR=Not Rated; NC=Not Covered

The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities. Analysts’ stock ratings are defined as follows: Outperform (O): The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceived risk) over the next 12 months. Neutral (N): The stock’s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months. Underperform (U): The stock’s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months. *Relevant benchmark by region: As of 29th May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe**, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; for European stocks, ratings are based on a stock’s total return relative to the analyst's coverage universe**. For Australian and New Zealand stocks a 22% and a 12% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively, subject to analysts’ perceived risk. The 22% and 12% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively, subject to analysts’ perceived risk. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector.

15 February 2011



Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected performance of an analyst’s coverage universe* versus the relevant broad market benchmark**: Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. *An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector. **The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months. Credit Suisse’s distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Outperform/Buy* 45% (62% banking clients) Neutral/Hold* 41% (60% banking clients) Underperform/Sell* 11% (54% banking clients) Restricted 2%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

See the Companies Mentioned section for full company names. Price Target: (12 months) for (PCGB.KL) Method: We set our target price at RM7.5/sh based on Discounted Cash Flow (DCF) method assumping ethane costs is doubled due to price adjustment with Petronas once the agreements expire in 2016 and 2023. Our DCF calculation is based on Weighted Average Cost of Captial (WACC) of 9.6%, including the Cost of Equity of 11.8% Risks: Risks to our target price of RM7.5/sh are 1) ethan price renegotiation with Petronas Group companies 2) Avaliability of gas supply with Petronas 3) Appreciation of Malaysian Ringgit as PCG's revenue and major part of its costs are denominated in US$, 4) Flucturation in oil price and petrochemical margins, and 5) Unscheduled shutdown of plants from unforseenable events Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

Important Regional Disclosures Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (PCGB.KL) within the past 12 months.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

The following disclosed European company/ies have estimates that comply with IFRS: BP.L.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at anytime after that.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors:

15 February 2011



The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. • Paworamon (Poom) Suvarnatemee, CFA, non-U.S. analyst, is a research analyst employed by Credit Suisse Securities (Thailand) Limited. • Puchong Kometsopha, non-U.S. analyst, is a research analyst employed by Credit Suisse Securities (Thailand) Limited.

For Thai listed companies mentioned in this report, the independent 2008 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: PTT Chemical PLC(Excellent), PTT Exploration & Production(Excellent), PTT Public Company Limited(Excellent), Siam Cement(N/A). Where this research report is about a non-Taiwanese company, written by a Taiwan-based analyst, it is not a recommendation to buy or sell securities For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683. Disclaimers continue on next page.

15 February 2011 Asia Pacific/Malaysia

Equity Research

CL0171.doc

This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG, the Swiss bank, or its subsidiaries or its affiliates (“CS”) to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients as its customers by virtue of their receiving the report. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise constitutes a personal recommendation to you. CS does not offer advice on the tax consequences of investment and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. CS believes the information and opinions in the Disclosure Appendix of this report are accurate and complete. Information and opinions presented in the other sections of the report were obtained or derived from sources CS believes are reliable, but CS makes no representations as to their accuracy or completeness. Additional information is available upon request. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, a trading call regarding this security. Trading calls are short term trading opportunities based on market events and catalysts, while stock ratings reflect investment recommendations based on expected total return over a 12-month period as defined in the disclosure section. Because trading calls and stock ratings reflect different assumptions and analytical methods, trading calls may differ directionally from the stock rating. In addition, CS may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. CS is involved in many businesses that relate to companies mentioned in this report. These businesses include specialized trading, risk arbitrage, market making, and other proprietary trading. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgement at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR’s, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment, in such circumstances you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS’s own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this report or CS’s website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is regulated in the United Kingdom by The Financial Services Authority (“FSA”). This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States by Credit Suisse Securities (USA) LLC ; in Switzerland by Credit Suisse AG; in Canada by Credit Suisse Securities (Canada), Inc.; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A. or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instrument Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Securities Investment Advisers Association; elsewhere in Asia/Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited , Credit Suisse Securities (Thailand) Limited, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn. Bhd., to whom they should direct any queries on +603 2723 2020. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this report was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA or in respect of which the protections of the FSA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. Any Nielsen Media Research material contained in this report represents Nielsen Media Research's estimates and does not represent facts. NMR has neither reviewed nor approved this report and/or any of the statements made herein. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Copyright 2011 CREDIT SUISSE AG and/or its affiliates. All rights reserved.

CREDIT SUISSE (Hong Kong) Limited Asia/Pacific: +852 2101-6000

Petronas Chemicals Group - Credit Suisse

Documents

Transcript of Petronas Chemicals Group - Credit Suisse