Welcome to the PETRONAS Chemicals Group Berhad analyst briefing for quarter ended 30th of June, 2023 conference call and webcast. At this time, all participants are in listen only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you need to press star 11 on your telephone keypad. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to speaker today, Miss Zaida Alia. Please go ahead. Thank you, Nadia. Hello, and Assalamualaikum, ladies and gentlemen. Welcome to PETRONAS Chemicals Group Berhad, and its briefing for the second quarter financial year 2023. I'm Alia, Head of Investor Relations. Thank you for joining our call this evening. You should by now be able to access and download the financial results from the Bursa Malaysia website, as well as today's presentation materials in our corporate website or in the link provided in the event invitation. We are pleased to have our key speakers for today's briefing, our Managing Director and CEO, Mr. Mohammad Yusri, and our CFO, Mr. Azli. Also present to take questions after the highlights, our senior management, comprising of Chief Manufacturing Officer, Mr. Zamri, Chief Commercial Officer, Mr. Shakil, Head of Strategy, Planning and Ventures, Mr. Yaacob, and last but not least, Dr. Debbie Chiu, our Head of Specialty Chemicals. Without further ado, I shall now hand you over to Mr. Yusri for the performance highlights. Thank you, Alia. Very good evening, everyone. Thank you for being here today with us. From the last session that we had in May, the global economy continued to decrease as inflation remained high, resulting in central banks taking on stricter monetary policies, which in turn negatively affected market and expansion. This was apparent as global GDP growth declined from 3.5% to 2.44% at the end of the first half of this year. This slowdown was also evident in global PMI, which contracted to 48.8 in first half 2023, compared to 52.2 in the same period last year. The global manufacturing sector worsened due to weak domestic and export market, alongside manufacturing job cuts due to the drop in purchasing activities. The benchmark Brent, the benchmark Brent crude oil fell 26% to average at $81 per barrel in first half of 2023, compared to $108 per barrel in the first six months of last year, on the back of suppressed demand and uncertain economic landscape, coupled with slower than expected. With these same challenges, the chemical industry also saw weak commodity growth, driven by reduced consumer spending and lower demand from the end market. Prices of our products declined across the board in the first half of the year. The F&M segment was particularly weak on oversupply issues, weakening demand in downstream markets amidst lower natural gas prices in Europe. Moving on, ladies and gentlemen, let's, let's talk about our performance in the first half of 2023. We began the year with a scheduled plant maintenance activities at PC-LDPE and PC Aromatics in quarter one. In the second quarter, there was no major plant maintenance activities. However, we experienced an unexpected downtime at PC Methanol, Plant 2 and PC Fertiliser Sabah, due to feedstock supply disruption caused by a necessary proactive maintenance activities on our supplier side. Despite the temporary shutdown of our two plant, our group plant utilization rate for the period was a commendable 89%. This year, with the volume from Perstorp, our production rose by 21%, reaching 5.4 million tons for the first half. Year-on-year, sales volume increased across all segments on higher production and additional volumes from Specialty Chemicals and our Pengerang Integrated Complex, which is currently undergoing test run. This resulted in a notable 11% rise in group revenue, recorded at MYR 14.7 billion, despite the overall lower product prices. Group's EBITDA, however, declined significantly to MYR 2.1 billion, mainly due to lower product sales across both the O&D and F&M segments. Consequently, EBITDA margin was lower at 15%, compared to 33% in the same period last year. The group's PAT also declined to MYR 1.2 billion from MYR 3.9 billion during the same period last year, mainly due to lower share of profit from our joint venture and associates, and unrealized FOREX loss on the revaluation of debt at Perstorp. Next, I hand over to Azli to take you through to the details of our financial performance. Thank you, Encik Yusri. Ladies and gentlemen, thank you for joining us this evening. Let's now dive into the financial performance, starting with the Olefins and Derivatives segment on page 3 of the deck, where we will compare the result of the second quarter of 2023 against first quarter of 2023. As Yusri mentioned earlier, global PMI continued to contract in the second quarter due to slower than anticipated recovery from China, a slower manufacturing sector, and reduced demand in the downstream industry. This has subsequently impacted most of our O&D product prices. With the exception of MTBE, that saw a slight gain on tight supply following heavy turnaround in Southeast Asia region, all other products were assessed between 1%-13% lower compared to the first quarter 2023, with propylene seeing the largest drop, followed by LDPE at 8%. The production for the segment improved with no planned turnaround activity during the quarter. With that, we recorded an 8% increase in sales volume. As a result, the O&D segment revenue increased 7% quarter-on-quarter to MYR 3.6 billion, despite the overall lower product prices. EBITDA for the segment almost doubled to MYR 584 million from MYR 299 million in the preceding quarter on higher net effect of sales, mainly from higher sales volume, which included volumes from our Pengerang petrochemical plant and lower fixed costs. This was slightly offset by lower product spread earned from the ethane-related product, in line with lower product prices. Following the EBITDA improvement, EBITDA to 16% in the quarter under review. The segment profit after tax more than double to MYR 422 million, aligned with higher EBITDA, partially Offsetted by lower contribution from our JV, mainly our JV with BASF. Moving on to the Fertilisers and Methanol segment on page 4. The F&M segment experienced a number of challenges during the quarter. Urea and methanol prices declined quarter-on-quarter by 18% and 11%, respectively. Ammonia price saw a significant reduction of more than 50% compared to first quarter of 2023, as European gas prices declined and demand for downstream product dampened. Apart from failing product prices, the segment also challenged on the operational front. As mentioned by Encik Yusri earlier, we experienced unplanned shutdown at our plants in PC Fertiliser Sabah and PC Methanol in Labuan, due to feedstock supply disruption as a result of a proactive maintenance work carried out as the SSGP pipeline. There were also minor maintenance activities undertaken at our urea plants in ABF Bintulu and PC Fertiliser Kedah. This has brought down our plant utilization rate to 73%, compared to 97% in the previous quarter, impacting our production volume by 24%. Drawing from our inventories, we managed to minimize the above impact on sales volume, which declined 5% quarter-on-quarter. With all these factors combined, revenue for the F&M segment declined 22% to MYR 1.9 billion. EBITDA declined 41% to MYR 460 million, largely due to lower sales volume, namely for methanol and urea, and lower product spread, especially for ammonia and methanol. EBITDA margin was recorded lower at 25% due to market decline in product spread. Profit after tax for the segment declined 55% quarter-on-quarter to MYR 241 million, in line with lower EBITDA. Moving on to our Specialty segment on page 5. In 2Q 2023, the Specialty segment recorded lower revenue and EBITDA, attributed to a slower recovery in product demand in key segment as major end market, such as construction and consumer goods, face slow growth due to higher interest rates and inflation. This is on top of lower realized prices, driven by price competition, mainly from China. The sales volume and product mix remained subdued in quarter 2, 2023, across the Resins and Coatings segment due to lower end market demand, particularly in the consumer goods end markets, on the back of high inflationary environment. Strong competition and price pressure from China has also adversely impacted demand and selling prices across the engineering fluid as well as silicone segment. Nevertheless, we saw some solid demand in the automotive end market, which has led to positive outcome in our advanced materials segment, particularly the PVB film, but certain products, such as the PVC stabilizer, saw lower demand due to slow recovery in the construction industry. For the Animal Nutrition market segment, we saw an increase in margin with favorable raw material prices and a shift to higher margin specialty products. All in all, despite the reduction seen in the energy and material costs and high contribution from high margin business, being in the Animal Nutrition business, the segments, the specialty segment was weaker quarter-on-quarter following lower sales volume and continued pressure on prices. Now, let's look at the group's Quarter 2 performance. Our plant utilization decreased from 82% to 96%. Our plant utilization decreased to 82% from 96% in the previous quarter, due to unplanned shutdown in the F&M segment, as I have mentioned earlier. This resulted in a lower production volume at 2.4 million tons, compared to 2.9 million tons in the first quarter. Nevertheless, drawing from the available inventories, strategic sourcing from our commercial excellence initiative to make up for the lost volume, contribution from Perstorp and comparable total sales volume of 2.42 million tons. Market was assessed weaker quarter-on-quarter, our average product prices for the group declined about 10%. As such, group revenue declined 6% to MYR 7.1 billion, from MYR 7.6 billion in first quarter 2023. The group's EBITDA was slightly 2% lower at MYR 1.1 billion, largely due to lower product spread, particularly for ammonia and methanol. However, this was partially offset by lower variable costs, lower fixed costs, and a positive Forex impact. EBITDA margin gained slightly at 15% compared to 14% in the preceding quarter. We recorded an 18% improvement in our PAT at MYR 633 million, due to unrealized FOREX gain on revaluation of shareholder loan to Pengerang Petrochemical Company. Let's proceed with the cash flow and balance sheet. In the cash flow, cash was higher by MYR 200 billion at MYR 9.1 billion, mainly due to higher cash flow from operation, partially offsetted by dividend paid to the shareholders at MYR 1.3 billion on March 2023. Looking at our balance sheet, at page eight, total assets were higher by MYR 1.7 billion, mainly due to higher property, plant, and equipment contributed by project costs incurred in Pengerang Integrated Complex, expansion projects at Perstorp facilities, and the melamine project at PC Fertiliser Kedah. We also recorded higher cash and cash equivalent by MYR 168 million, due to effect of FOREX differences and a weaker on- weakening Ringgit against the US dollar. Total equity was higher at MYR 991 million, at MYR 41 billion, mainly attributable to profit generated during the period. That's all for the financial breakdown. Heading back to engineer Yusri for updates on sustainability matters and way forward. Thank you, Azli. Moving on briefly to our sustainability metrics. We are on phase of continuous improvement on our sustainability journey, and this journey is one of continuous learning on our part as we navigate our way into new industry requirements, standards, and even stakeholders' expectations. Earlier, we discussed the economic pillar with regard to our operations and earnings, let me move straight into the environment pillar. On a year-to-date basis, comparing again last year, our GHG emissions were higher, largely due to higher production volume. This is despite the disruption at our F&M segment that we mentioned earlier, as all other plants were producing as planned. With the better production volume, GHG intensity reduced by 8.9% to 0.71 tons of CO2 equivalent per metric ton production, compared to the first half of last year. Nonetheless, our year-to-date reduction for the 6 months of 2023 stands at 26.1 thousand tons of CO2 equivalent, contributed by various operational optimization or initiatives, such as flaring and venting minimization, and also fuel optimization. This brings us to a total reduction of around 134 thousand tons of CO2 equivalent, which has exceeded our initial target of 100 thousand ton by 2024. With that, we are on track to achieve our medium-term target of 20% GHG emissions reduction by 2030. This year, we sent more hazardous waste for recovery as part of our ongoing efforts to minimize our environmental impact. As such, we recorded 81% of hazardous waste recycling rate, higher than the 74% recorded in the same period last year. On our social front, we are expanding our signature mangrove rehabilitation program, ecoCare. This program that we started with the Malaysian Nature Society-... the mangrove forest along the Kertih River. With the participation of local communities in the surrounding area, we have been able to educate and share on the importance of the mangrove ecosystem and its impact on biodiversity. Over the years, we have reached some significant milestones with this program. This year, we have started the same program in Tanjung Surat, Johor, with the aim to plant up to 5,000 trees, and to date, you know, we have planted about 4,000 trees. This is one of the key elements in our net zero carbon emissions roadmap, and key in our commitment towards creating a positive economic, environmental, and social impact, and lowering our carbon footprint. Our immediate commitment of 20% emission reductions by 2030 remains on track, with continuous tracking and upgrade works at our manufacturing unit. More will be shared on this topic in the near future, so bear with us. We will continue to update you on our progress periodically on this matter. Before we move on to the market outlook, in the recent review by FTSE, we are happy to inform that we remain a constituent of the FTSE4Good Bursa Malaysia index, with a four-star rating on our disclosure. Thank you for your support of us and for the feedback shared on our continuous improvement in our journey. Let's move to the market outlook. Over the past few weeks, there has been a positive development in product prices, attributed to the rising trend in crude oil prices and increased restocking activities. In the O&D segment, we foresee that Ethylene price is expected to be stable, in line with the higher prices of Naphtha, despite the ample supply that may cap further price increase. MEG price is forecasted to be stable, driven by a balanced supply due to plant shutdowns in China. Polyethylene, the buying activity is expected to gradually improve by the end of August due to restocking activities ahead of the festival season, starting with the Golden Week in China, Diwali, and later, Christmas in the fourth quarter. In the meantime, China's government's stimulus policies are anticipated to boost consumption and improve market recovery in China from the third quarter onwards. For Paraxylene, the price is forecasted to be stable on balanced supply, on plant maintenance shutdown. Demand is expected to be driven by improved PTA production for ASEAN gasoline demand and new plant startups in China. On F&M segment, urea prices are showing upward trend due to limited supply and fresh demand due to the upcoming planting season in Myanmar, Brazil, Mexico, and Canada in the third quarter. Ammonia prices is expected to stabilize following supply shortages in Indonesia and Australia due to plant shutdowns. Downstream demand remains weak, with caprolactam and acrylonitrile plants utilization maintaining below 50% level. For methanol, prices is forecasted to be soft due to weak demand from downstream derivatives such as acetic acid, formaldehyde, and biodiesel. Several Middle Eastern plants are reducing operating rates due to margin concerns stemming from declining methanol prices. The performance of our specialties segment continues to rely on the improvements in the end market demands that drive the microeconomic environment, as well as effective feedstock management, especially in the European region. The drop in energy prices have also led to lower product prices. The weak demand for specialties seen in the second quarter of 2023 is expected to prolong, as end markets, such as construction, is expected to remain sluggish in the prevailing global inflationary environment. In contrast, automotive and transportation segment is expected to ride on the positive momentum from the first half. Economic development remains an essential component to support the recovery in specialties the second half of 2023. Overall, market remains challenging for the rest of 2023. As such, we will continue to closely monitor the market dynamics, paying particular attention to factors such as geopolitical tensions and the progress of China's recovery, to ensure we remain agile and effective in our response to the market volatility. Next. Ladies and gentlemen, let's have a quick recap of our projects and focus areas before we move into Q&A. During the first quarter results, I had mentioned about 2023 being challenging from the get-go, inflationary measures and monetary policies continue to impact economic growth. This, however, has not swayed us from our pursuit of growth and diversification. We reached final investment decision to fully acquire the 113 kilo ton per annum maleic anhydride plant located in Gebeng, Kuantan, from BASF PETRONAS Chemicals Sdn Bhd. The FID signifies the start of the plant's project execution phase that will upgrade and rejuvenate the facilities to produce maleic anhydride, which is targeted to be ready by the second half of 2025. Maleic anhydride is mainly used in the productions of unsaturated polyester resin, painting, and food flavoring, which is seeing rising demand in Asia Pacific and Indian subcontinent, and at the same time allows us to explore potential opportunities in European and Middle Eastern markets. Looking forward, we see potential future integration of maleic anhydride specialty chemicals derivative with our subsidiaries, Perstorp and BRB, to deliver innovative solutions, along with possible synergies with other maleic anhydride downstream manufacturers in Malaysia. Other projects, namely our joint venture project, the nitrile butadiene latex plant in Pengerang and the specialty ethoxylates plant in Kertih, are on track to come on stream by year-end. The Pengerang Integrated Complex is still undergoing its test run as we speak. As I mentioned earlier, we are not anticipating much improvement in the market in the second half of the year, as inflation remains a key headwind against manufacturing and economic growth. As such, product prices and spreads will remain pressured. Given the market conditions, the startup progress at PPC will continue to incur operating costs, which will have impact on our earnings. Additionally, we have two scheduled plant shutdowns coming up this second half, and some maintenance activity also in the second half, where we are expecting then a slight drop in our production volume. Our priority will be on ensuring effective executions of these activities, as well as the safety of our employees and contractors involved in all those activities. This will also stretch our manufacturing team's capability to deliver all the maintenance programs on time, while always adhering to our HSE culture. It is becoming more and more important for us to manage our operations and costs to ensure we maintain financial resilience during these challenging times. That, ladies and gentlemen, is all that I have for today. Let's go to Q&A. Thank you, Tejinder. Nadia, we can proceed to Q&A. Thank you. Dear participants, as a reminder, if you wish to ask a question, you need to press star one one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by, we will compile the Q&A roster. This will take a few moments. Now we're going to take our first question. First question comes from line of Raymond Yap from CGS-CIMB Securities. Your line is open, please ask your question. Hello, good evening, everyone. Thank you for taking my call. I'd like to ask, the first question is the F&M segment, which you noted that there was some gas supply limitation caused by the SSGP pipeline maintenance. I'd just like to double-check whether that maintenance has been resolved and what kind of F&M utilization rate are we expecting in the third quarter? Raymond, thank you for that question. The maintenance activity took close to 20 days, and that has been resolved, and both plants are currently operating a full rate. Moving on to the second half of the year, we don't expect any shutdown of our F&M plant, so we will be running, you know, as much as possible, flat out, moving forward towards the end of the year. In the first quarter, your F&M utilization was 97%, so I should expect at least above 90% to be reasonable? Yes. That, that's our That's the plan. Okay, sure. Another question on the O&D, and I noticed that the O&D did well in the second quarter compared to the immediately preceding first quarter. I'm just wondering how much of that improvement was caused by FOREX gains? Thank you, Raymond. Forex gain is basically around MYR 150 million. That's basically the impact of the Forex for the loans that we have for Pengerang Integrated Complex. Yeah. Okay, that's, that was noted on your Bursa announcement. There was a FOREX translation gain in the second quarter of MYR 146 million. At, at the same time, you still mentioned there was a FOREX translation loss on the debt at Perstorp. The MYR 146 million FOREX gain is the, is inclusive of the, the FOREX loss on the Perstorp debt, I presume. Yes. The FOREX- okay, so the FOREX gain on the O&D side alone should be much more than MYR 146 million then, right? Yeah. That depends on how much the loss was on the Perstorp debt. Correct. Correct. I think that the, the FOREX of MYR 146 for the, for the group, Raymond, is not just O&D. Yeah. This is already- Yeah. Okay. Consolidated number for the whole group. Yes. Yeah. Okay. Azli, could I just ask you if you could tell me how much was the FOREX loss at the Perstorp level? Just for the Perstorp loan. For the Perstorp is, slightly more than 150 million Ringgit. That's for the quarter, yeah. Because. Okay. We have a shareholders loan that we provide to Perstorp that's in Euro. Then Perstorp, as you know, is a Swedish, you know, based company, so their functional currency is in Swedish krona. As Swedish krona depreciates against the Euro, they need to book this FOREX unrealized FOREX loss. While the debt will not appear in our consolidated statement because it's eliminated, Perstorp needs to record that unrealized FOREX losses. Okay. This Euro debt is a Euro debt that is provided by PCG, is it, to Perstorp? Yes. Basically, as part of the completion of the acquisition, Raymond, we settled the third party, the external financing that they had with the third party, with the external banks. We replace it with our shareholders loan from PCG. Okay, okay. I see. Okay, if Perstorp booked in a $150 million FOREX loss for the shareholder debt extended to Perstorp, that means the FOREX gain booked in the O&D side should be about $300 million? Because $350, $300 minus $150 will get you that net $150 FOREX. We have other, in other segment as well, Raymond. The, the one that you see in the Bursa announcement is a net effect of the FOREX, gains and losses. In that case, I mean, roughly how much would be the FOREX gain at the O&D side alone? Hello? Excuse me, Raymond. Just give us a moment. Hello? Sorry. Hi, yeah. I can hear you now. Yeah. Okay. sorry, Raymond, did, did you get my, my response just now, or do I accidentally got cut off? No, there was, there was a... I didn't hear any response. Oh, okay. Basically, we have other FOREX gain from other segment, not just O&D and Specialties. Basically, the one in the Bursa announcement is the net effect of the FOREX gain and losses. Okay. If, if I just want to identify the portion of the FOREX loss attributable to O&D, how much would that be? That would be MYR 180 million, and to be specific, MYR 150 million of that is for the Pengerang loan. Okay. Okay, sure. Okay. Yeah. Okay, I'll just go back to the queue. Thank you. Thank you, Raymond. Thank you. Now, we will take our next question. Just give us a moment. The next question comes from the line of Ahmad Maghfur Usman from Nomura. Your line is open. Please ask your question. Hi, good evening, everyone. Thank, thank you for taking time to take my question. I just wanna follow up on a few things. What was the pre-operating loss at the Pengerang site? That's one. Can you remind me again, what was it in the first quarter? Then also with regards to this maleic anhydride plant, I understand that it was acquired from BASF, but the transaction pricing was not revealed. Could you possibly disclose that? What would be the impact to your bottom line, come commencement in 2025, in the second half? That's the second question. Probably answer these two first before I follow up with another two more. Sure. Ahmad, thank you. I think in our quarter one result announcement in May, I did verbalize that our operating loss at Pengerang Chem Complex range about negative MYR 100 million for the quarter one. As we progress into quarter two, as Pengerang increase their production, as we manage to evacuate most of the volumes to Southeast Asia region, we manage to lower that negative impact to around MYR 70 million negative EBITDA. The negative EBITDA is reducing as the production ramps up. And we anticipate this improvement will continue into quarter three and quarter four, as we ramp up the plant capacity. Okay? For the maleic anhydride, Ahmad, I think it's our both joint understanding with BASF PETRONAS Chemicals not to reveal the transaction price. In terms of the impact of our bottom line in 2025, it's quite early to say now and to give you any guidance. This is basically as part of our growth strategy trajectory, moving further downstream into the intermediates and specialty chemical, where we can demand certainly more premium over the commoditized petrochemical product. This will be a value add as opposed to the normal building block of pet chem product that we have. Okay. Thank you. Just a follow-up question on, on the first one. What kind of utilization were you running at in the second quarter? That's one. On the, this, I don't know how to pronounce this, Maleic anhydride plant. How much utilization run rate are you expecting by second half in the initial ramp up? And what's the normalized level that you're expecting for this particular plant? Also, assuming, say, 100% utilization, is it fair to say that potential revenue contribution should be to the tune of about MYR 400 million-MYR 500 million, roughly? I think, thank you, Ahmad. On, on, on run rate at Pengerang, I think currently it's too early for us to have run rate because the plants are in the process of starting up. They go up and go down. We don't track run rate, per se. It's just trying to establish steady operation. Until the plant moves into what we call as commercial operation, post PTR, then we will then track run rate and start declaring run rate. It is, I think, too early for us to share because it is still fluctuating currently. For maleic anhydride, again, it is too early, but typically in our project ramp-up production, we put around 40% to 50% in the first year of operation before we ramp up to 70, and to 90, and beyond in the subsequent years. I think that, that's all for now. We will continuously update on the contribution and so on as the project progresses, and we are closer to the start-up date, in 2025. All right. The first question, the utilization rate for the Pengerang, or you've answered that already? Okay. Yeah, I just mentioned that. It's too early- Yeah. because as I said, it's all in the stabilization phase, so- Yeah. Very difficult for us to set a stable, PU rate. Okay. Okay, last question is on the negotiation on the ethane intake with PETRONAS. How's that coming along? Could you guide this, guide us, what we can expect? Well, we are still finalizing the negotiation with PETRONAS, and we will make that announcement before the year end, 'cause that's the end of the extension that was agreed between both parties. Our expectation is it will not be materially different from what we have right now in term of gas pricing. Okay. All right. Sorry, one last question. How about your naphtha intake for Pengerang? Is it based on market price or it's some form of discount, or you're not able to disclose? We, we, we don't buy naphtha, Ahmad. We, we only buy. Sorry, sorry. ethylene Yeah, yeah, Ethylene. Ethylene. Yeah, ethylene from the refinery. We are in the petrochemical- Yeah ... portion. Yeah, we are not in the cracker side. Yeah. So- Yeah, yeah. ... this is based on an agreed formula price that was between the 2 joint ventures. How does that compare to the current ethylene spot prices? It's basically market prices with a discount, so it would be based on market benchmark with a over the fence discount. Okay, got it. All right, I'll jump back to the queue. Thank you, gentlemen. Thank you, Ahmad. Thank you. Now we're going to take our next question. The next question comes from line of Sumedh Samant, from JP Morgan. Your line is open, please ask your question. Yeah, hi. Thank you for the presentation. Just a couple of questions from my end. I think firstly, on the Olefins side, right, we noticed that the EBITDA has significantly improved. I'm not talking about profits, which might have some foreign exchange gains, but just want to understand better why EBITDA improvement was so strong. Apart from volumes, we couldn't find anything specific. Can we answer that question? Thank you. Yeah. Thank you, Sumit. It's one of the main contributor is lower energy and utilities costs, actually, because O&D segment are the highest consumer of energy utilities costs. As LNG prices reduce from quarter one to quarter two, our gas for fuel and accordingly, our electricity tariff also reduced. That basically, you know, a significant comparison between quarter one and quarter two for the O&D EBITDA. May I, may I ask, like, the magnitude of the utility sort of cost benefit that you have for this quarter versus last quarter? Okay, I don't have that in front of me. I, I, I will get back to you after I got the, the number, Sumit. Sure, sure. That's fine. Sounds great. Just second question also on the Specialty Chemicals, right? Again, same question, but in different direction. Clearly, the margins sort of came down to, like, barely 2%, and I, I recall, in the past conversations, we had indicated that the margin is gradually improving. What exactly happened there? If I have to ask you sort of a second half margin, will it be going down from here, or will it be staying here, or will it go to sort of 10+% at some point? Yeah, thank you. Thank you, Sumit. I, I'll hand over to Debbie, our Head of Specialty Chemicals, to answer that question. Hi, thank you for the question, Sumit. Yeah, I think we talk about the specialty area, the margin is typically around 13%-18%. Unfortunately, you know, we're in a strong headwind situation right now, and we don't see that situation gonna see much improvement coming from here. The margin came down barely 2 or 2 point something. It is mainly coming from the very, very soft the market demand. Especially, you know, we're very strong in Europe. We do see a lot of the influx of the cheaper import from the Chinese, from China market, and that has majorly, vastly impact on our pricing. Even though we have seen some energy costs giving us some relief, however, the strong competition coming from the China market and also the very soft demand, you know, has make this market is very, very tough at this point. Moving forward, like Yusri has mentioned, you know, in the building construction area, which a lot of our resins, the encoding segment are in that, that market probably gonna stay challenged for a while, mainly because the inflation and interest rate. We do see a certain other segment, for example, for the aerospace, for the automotive, they, we do see some light in there, and they're probably gonna stay better or picking up some of that. However, we do see, for the second half of this year, we're probably gonna stay flat, at, as what we have done in the first half. Okay, thank you. Thank you. Maybe just one last thing, again, and again, going back to the first question, is there any, any sort of positive EBITDA contribution from the PIC JV, in the O&D segment EBITDA? Would we, could we say that, or, or is it still loss-making? As I mentioned, as I respond to Ahmad question earlier, for quarter two, we still have negative EBITDA for Pengerang at around MYR 70 million, compared to negative MYR 100 in quarter one. The negative EBITDA situation has slightly improved, Sumit, and we anticipate that as the plan continue to ramp up towards commercialization, that negative EBITDA will be reduced over, over the period. Got it. Got it. Can I check again, right? Because in the past, I recall when you said that you had only 4 machines running or 4 plants running, and now it's like 7. You could have seen, like, an expansion of losses. Why was there a compression of losses? What changed? We have more volumes for Olefins and Derivatives, especially contribution from Pengerang. That is basically the one that drive the improvement in the negative EBITDA. Yeah. Okay. We expect the volumes to improve, kind of that, that allows your EBITDA to continue improving? Yeah. Yeah. Yes. Okay, good to know. Thank you so much. Thank you. Now we're going to proceed to our next question. Just give us a moment. The next question comes from line of Mayank Maheshwari from Morgan Stanley. Your line is open. Please ask your question. Thank you, and thank you, management, for giving us the detailed presentation today. A few questions, I suppose, following up with all that has been asked right now. Let me just start with the specialty side. In terms of a bit more granularity around where the biggest pain point is from the competition from China, if you can just highlight of where that is? And also, in terms of what you guys are doing to kind of negate that impact, considering these are specialties, so I'm assuming that you would be kind of taking your market share presence locally and trying to kind of keep your market share up, irrespective of what the competition is. Can you just give us a bit of an idea, in the Specialty division, what you guys are really trying to do and where the biggest pain points are within the Specialties? Okay, thank you for the question, Maya. The biggest point is, if you see, we are the leader in the Polyolefins segment. Unfortunately, that is an area that we see, with China, the soft domestic demand, we do see a lot of influx coming from China. That is our biggest pain point for now. Moving down the road, as I just mentioned, you know, the headwind is probably gonna be there for another maybe a year or even longer. You know, we're not staying in, in place. We're looking at, on the, the equation of the two side, right? We're doing everything, looking at our operational excellence and our cost position. We optimize our supply chain of network, looking at all that. On the other side, you know, our strengths compared to our competitors coming from the China market is we have a much better technology, we understand the market better. On that side, we're developing more specialty products, and also getting more application aligned with the customer. Along the, the two sides, we're working to optimize our cost position, and also we're working on our application and product position to gain more differentiated position compared to our competitors. Okay. I think if you think about it, I think Animal Nutrition has been a pain point for some time now. Is that got even worse, and is there anything that actually improved at the margin on advanced materials or silicones? Yes. Actually, Animal Nutrition has been quite stable. As a matter of fact, I think they have done quite okay for the second quarter. Because Animal Nutrition is a smaller percentage of the business. They're, actually, they remain quite stable this year. We, we do see some demand pick up in the Animal Nutrition areas. Okay. Got it. Now, the second thing was more in terms of the impact of the lower gas costs in Europe. Obviously, it's not being shown up in the EBITDA because I suppose partly because of competition. In terms of cost positioning now versus I suppose imports from China, how would you kind of define your cost, cost positioning now with gas costs normalizing, et cetera, versus China? Right. The energy, the gas position has been improved. Our cost position has improved in that sense. One thing we do understand is, you know, China, they're kind of, quote, unquote, you know, dumping because they have different thinking. In a lot of times, they could go even under quoting to the market. Looking at our cost position, I would say we're still at a disadvantage compared to the Chinese selling price. However, you know, we're pretty confident with, when we're looking at all our cost position, we're doing all the optimization, you know, we will be quite at par to compete with Chinese product in the European market. Got it. I think coming back to, I think, just on Pengerang, if you can just help us, at, or talk about like how much total volumes of PE, PP, and even MEG, that you were able to kind of, report in the production volume number for O&D? The, the, I think that, that requires quite detail, Maya, because, I think throughout this starting up period, it's, it's, it's basically on tender basis. And it's not yet operational, so the equity of take is not based on shareholding entitlement. I think just to point, point out that however, you know, during this period, ECG has been managed to secure most of the volumes during this operational period, and we managed to sell it to spot markets throughout South Asia region. I think to identify the product volume specific to Pengerang, because we are looking at as part of our, our total O&D portfolio. It's quite difficult to really iron out for PP, HDPE, LDPE, how much is it for, for Pengerang at the moment. I think moving forward, this is something that we can consider. Yeah. It's again, as, as, I mentioned earlier, at, at this point of time, our, our focus is getting to be stable operationally. So we're not tracking it by segment yet, we're just lumping the volume, and even the, the, the mode of sales are not through equity yet. It's still through tender as and when available. So it is, it's difficult for us to segment as currently. Yeah. Got it. The reason I was asking this was basically not to just get the volumes, to get a sense in terms of how the losses will reduce over time, because MEG obviously has been very challenging for everybody, and PP has not done as well, so I'm assuming that you, because your loss has reduced partly because, I suppose, energy costs and partly because of the mix shift, which may be in favor of PE over the other products. Is that a fair comment or? Yeah, I think if you want to just use rule of thumb, maybe quarter two, above the volume of quarter one. Not specific product, but in terms of overall volume from Pengerang. Okay. Okay. I think the last question was more related to the FX impact. Sir, is there like, is there any hedging policies or anything that you're kind of looking at to kind of reduce this volatility around FX loans, et cetera, that you have? Or is this now a new normal that we'll have to kind of look at going forward? We, we have a assessment, Mayang, especially to cater for the unrealized FOREX loss that we have for our loans to Perstorp. We, we are assessing whether we want to convert the functional currency of Perstorp from Swedish krona to euro, basically having a natural hedge against the most of the borrowing, which are in euro. I think this is still under assessment because it's not as easy to switch that functional currency instantly. If we will manage to do that, then most of these unrealized FOREX loss from relating to Perstorp could be eliminated significantly. I think that is something that we are exploring. We don't do hedging per se, Mayang. At least for, for PZ, as you know, a lot of our revenues and, and, and, and costs, for that matter, especially if stock costs are US dollar denominated. In a way, we do have a natural hedge for most of our commodities, product. It's the specialties, exposure on the forex that we are managing at the moment. Got it, sir. Very clear. Thank you. Thank you. Now we're going to take our next question. Just give us a moment. Our next question comes from the line of Ho Meng Kong from UOB-Kay Hian Holdings Limited. Your line is open, please ask your question. Hi, good evening. Ho Meng here. Can you hear me? Yes, Ho Meng. Yes, Ho Meng. Hi, thanks for the call. Just to follow up on several questions. Okay, first, I'd just like to touch on the Specialty Chemicals again. You know, the your the EBITDA was quite weak in the quarter. I, yeah, you, you did highlight the market outlooks and things like that. Just to double check on one thing, I think in terms of Perstorp's expansion plan, Perstorp was, is supposed to build a new plant in India. Has that already started? If yes or no, did that plan partly contributed to the, you know, maybe a pre-operating cost or things like that, you know, partly contributed to the lower EBITDA in the second quarter? Yeah. Okay. Thank you for the question, Ho Meng. Actually, I'm glad actually you brought this up. Our India Sayakha plant, it has not yet been started, start up yet commercially. We will start up the plant commercially in fourth quarter this year. We believe once that plant gets started, we will have a much better position, cost position, because, you know, mainly a lot of supply is coming from Europe today. Once we have this India plant up running, we will be able to supply much more regional, region for regional. The cost is gonna be much more competitive with our peers. We're actually looking forward, once we have this plant start up, we will see a improvement in our cost position and supply situation. Got it. maybe can you remind us, also, you know, relative to your existing plants around the world, or let's say for example, Europe, India and China, how big is this new plant relative to the other regions? Yeah. This... Yes, we have, several plants- Yes. specifically for the product line. India is about the same size, the biggest size of our biggest site in Europe. Yeah, we, we, I think it's the same size- Same size ... the plant that we have in Sweden. Yes, the big- China- bigger one. Half of that. Smaller, yes. China is half of that. Yes. Then we have two other smaller sites in. Yes and in Germany. Yes. Right. All right. Okay, got it. Okay, thank, thanks for that. Okay, I'll move, move forward to the, where you, you have updated that the, your divestment for the, the, your Sabah assets has already been completed in July. How much, which that, so, so, you know, for your upcoming third quarter results, which will, which will reflect, the July numbers, right? How, how, what are the numbers that we should expect, you know, one-off, financial closures, things like that? Yeah. The impact of that- Yeah. I think, yeah, thank you for the question. The, the, the impact of that conclusion of the divestment has already been published in our Bursa announcement. Mm-hmm. Okay, we can follow the same guidance from there. Correct. What we disclosed today in the press announcement is an updated version of the indicative number when we announced the deal. That has take into account the latest financial as at 31st July, 2023. That will be the latest number. Okay. To double check on the revaluation of the loan for Pengerang, so that is represented in the FOREX gain of around MYR 150 million. Also in your note for the, you know, on the operating profit level, right, you have a write up of inventory gain, I think, that's MYR 32 million, versus, you know, in the first quarter, you have a write down of MYR 70+ million of inventories. Yeah, maybe you can share a bit of that on the inventory side. On the inventory side, it's basically based on market movement. Because we have, we compare our inventory value based on net realizable value, cost of net realizable value. As and when there's a plant experiencing unplanned shutdown, it will obviously increases our cost per ton of the product, compare it with the volume of inventory we have left. That's basically the main driver. As I mentioned earlier, you know, the F&M segment, especially the methanol and urea, sorry, the ammonia and urea prices declined from quarter 1 to quarter 2. That will have an impact on our revaluation of inventories. Majority of the write down is basically because of the F&M inventory that we have. Even though you had the unplanned shutdown in your F&M side, in the second quarter, but, that kind of benefited in the inventory revaluation. Yeah ... in a way? Yeah. Yeah. Oh. Correct. Okay. All right. Also for the, I think you mentioned earlier in one of your comments that the SSGP related disruption that was around 20 days, right? Then you also mentioned that you also had disruptions that come from the MLNG side and things like that. Is that also within the 20 days you mentioned, or is it? No, there's no, there's no disruption of MLNG side. I think we, we lost- Okay ... gas supply because of pipeline was repaired. Okay ... That cost us 20, 20 odd days. It has been completed. The plant is up already. Both plants are up. Okay, got it. Okay. Just one, one more question from me. Just trying to understand, you know, you have overall lower volumes on a quarter-over-quarter basis, but your greenhouse gas emissions is higher on a quarter-over-quarter basis. Is that, does that mean that, you know, by segment, right, your intensity of the greenhouse gas emissions from the O&D side is higher than the F&M side? Because, you know, because the volume for the O&D side is the one that, that was higher on quarter-over-quarter basis. Yeah. Hello? Yeah. Yeah, yeah. Hold on. Okay. Let me just check our... No problem. Yeah. Yeah. I think on overall Q2 to we compare half year to half year, right? Mm. On the per ton basis, the intensity reduces because when we look at first half of 2022, the production was lower than the first half of 2023. This is comparing not quarter to quarter, but half year to half year. This year, overall production is higher than first half of last year, hence, the GHG emission is higher. On emission, I did not track quarter to quarter, and we only share half year to half year. Okay. Half year to half year, I guess it still makes sense, you know, volume. Yes. If you look at volume... Volume against the first half of last year increases. Mm, mm. Okay. Just, just, just trying to understand whether, you know, on a quarter-over-quarter comparison, because you do, you do disclose, in slide 9, I think, your recent volumes on the quarter, which, yeah, just wondering whether... Mm ... semester wise. Sometimes. Yeah ... if you do quarter to quarter, the impact of trips also contributed to GHG emission. Sometimes that, that kind of distorted the whole equation. That's why we need to average it out. Oh, meaning you say the small unplanned shutdown- Yeah, yeah. Then you, you, you, you have- All right. ... a bit more exposure to emissions. Okay, got it. Yeah, that's, that's all I have. Thank you. Thank you. Thank you. Now we're going to take our next question. Just give us a moment. The next question comes through line of Raymond Yap from CGS-CIMB Securities. Your line is open, please ask your question. Hi, I just wanted to follow up on the urea price. Urea prices have recently gone back up to about $400 a ton. Yusri, you mentioned that it was due to demand from the planting season. Could you give me a bit of color? How long will this planting season end, and also the Indian tender, how large is it? Are you supplying to that? Are you bidding into that? Thank you. Shakeel here. I think on the Indian tender, volume-wise, they're looking at 1.7 million ton. That's basically, I think market is eyeing for that, as basically adding to the bullishness of the urea price. At the moment, it's hovering about $380. I think with the Indian tender and also planting season in Myanmar and some other parts of Australia and all that, likely to support the prices in the next month or two. Okay. What happens after that? Do you have a bullish or bearish, or neutral view on the direction of urea prices after this seasonal? Very much. Okay. I think, there will also be seasons, but it was minor, not major, I would say. Sorry, sorry, could you repeat? I was saying that, basically the major cycle is in the next one, two months. After that, will be minor seasons, but not as, the demand may not be as strong as what we see in the next one, two months. Okay. That's clear. All right. Thank you. Thank you. Now, we're going to take our last question. Just give us a moment. The last question comes from line of Ahmad Maghfur Usman from Nomura. Your line is open, please ask your question. Hi, just three questions. Quick one. Have you started incurring depreciation from Pengerang site, given that you are running on pre-op operating operations? That's one. Second, I understand that there will be some plant integrity test where you will be required to run utilization run rate at about 90% over the course of three months. Is that, is that the case? If that's the case, what happens after that integrity test? Does, does the utilization come down depending on the demand and supply, or will you continue to maintain that utilization run rate of 90% as per required by the integrity test? That's the second question. Last one, I'm not so sure whether you're able to answer, but what is the price that Saudi Aramco sells their crude to the refinery? Is it, is it based on whatever announced price by the Saudi government, or is there some form of discount to that as well? Okay. That's- Thank you, Ahmad. Those are my 3 questions. Yep. Thank you. To your first question, we've yet to depreciate the, the Pengerang, packet complex, because it is yet to achieve the COD. The second question regards to the financing test. As you know, and as is disclosed in our accounts, as part of the covenant in the project financing, they need the, the integrated plan needs to demonstrate the, the, the test, the operation test compared to the plan, production, rate. I think, as Yusri mentioned earlier, the whole complex is gearing up for this particular test, and they, they, they are preparing for it, as we speak. I think once we have certified the test, the complex will be run based on economics. We will be running the complex as integrated complex. Which product gives the best economic to the complex, that's how we run it. Yeah. Okay. On, on your, on your third question, Ahmad, unfortunately, I cannot we cannot answer that that question, because number one, we don't own the, the refinery. Even then, well, I think we are not at liberty to disclose, the, the, the, the crude price. Okay. Understood. Thank you so much. Thank you, Ahmad. Thank you. We have now reached the end of today's briefing. Thank you everyone for your questions and your kind participation. Please reach out to us should you have follow-up questions. We look forward to receiving your reports once published. Good evening, and have a good week ahead. Thank you. Thank you. Thank you. That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.