Although the cycle of the petrochemicals and chemicals industry is moving downward, the sector is expected to continue offering some good returns to shareholders this year.

Investors enjoyed good returns from petrochemical and chemical stocks in 2003 and 2004, in terms of positive capital gains and large dividend payments.

However, in 2005, the sector's TSR was down as investors were concerned about the beginning of a downturn cycle, while stock prices were beginning to reflect actual values.

The sector for 2005 was ranked second from the bottom on the SET, with a negative total shareholder return (TSR) of -19.8%. The longer-term figures are better, at 47.1% over three years, 41.6% for five years and 1.8% over 10 years.

These compare with the stock market average TSR of 20.2% for one year, 43.1% for three years and 32.6% for five years.

According to Capital Nomura Securities' head of research, Kawee Chukitkasem, the industry would continue on a downward turn in 2006, with stagnant returns compared to 2005.

The petrochemical industry, which is highly cyclical, began to lose some of its attractiveness last year, when analysts said world product prices began to decline from the peaks reached in the previous two years, he said.

The top performer was The Aromatics name, PTT Chemical Plc (PTTCH), formed Thailand Plc (ATC). Despite a one-year from the merger between two local petroTSR of -50.5%, it delivered 81.2% over chemical giants, Thai Olefins Plc and three years, and a healthy 59.5% on a National Petrochemical Plc in December. Mr Kawee rated PTTCH as his top five-year basis, on a market capitalisation pick in the sector for this year, as, since of 28.5 billion baht.

ATC was the only compaone of Asia's biggest olefins ny offering a TSR above the makers, resulting in very comaverage of the sector, alpetitive costs, with the full inthough aromatics prices last tegration of upstream, downyear fluctuated strongly on stream and by-products from the back of an upswing in their productions. crude prices, an analyst said.

This was due mainly to players helped them to seal all aromatics demand growing the weak points and strengthen steadily, while additional competitiveness, as well as fully supply has yet to enter the integrate the petrochemicals market. product line,'' he said.

However, ATC is in the Thanapol: Plans to Consequently, the company progress of huge investment shift to property sector would offer some remarkable in its Complex II plant that would definitely affect shareholder return returns to shareholders compared to the for 2006, although ATC has reduced its rest of the sector, he said. For 2006, Mr Kawee was upbeat for risks by joining with Rayong Refinery PTTCH due to its continuing positive (RRC) to help cut costs.

In addition, prices of its main raw returns. Most analysts agreed that the material, condensate feedstock, contin- company would benefit from aggressive ued to rise, resulting in a drop in its expansion and business diversification product-to-feed-margin, according to to specialty products. ``The full integration will not only help Kim Eng Securities research.

Mr Kawee said ATC would be ranked reduce costs, it will also help sustain in second place for 2005 operations if earnings during the downturn cycle,'' the study had included the TSR offered said analysts.

Mr Kawee also attributed the positive by the old player under the new listedearnings of PTTCH to the nature of olefins prices, which moved more slowly than those of aromatics, in line with different feedstock prices. Olefins products use natural gas as feedstock, while aromatics use condensate oil.

Prior to the merger, both companies were also rated top of the sector.

Despite the positive rating for PTTCH, most analysts say they recommend being underweight in the whole sector this year, as its average return would drop to reflect the slowing cycle.

They also noted that the sector would likely continue offering a disappointing return due to a large jump in value in the previous two years, according to Kim Eng Securities research.

Thai Plastic and Chemical (TPC), for example, in second place in 2005, would be adversely affected by the steady drop in the price of PVC, its main product.

Researchers have forecast that its margin would drop by 4% approximately, inline with the increase in the cost of raw materials and the declining prices of its products.

For 2005 operations, TPC had an oneyear TSR of -3.9%, jumping to 35% and 41.8% for three-year and five-year respectively, and dropping to 7.4% over 10 years.

The worst performer in the sector was Yong Thai Chem, with market capitalisation of 57 million baht. Despite a positive 9.3% one-year TSR, its three-year dropped to 8.1%, five-year TSR stood at -1.8% and -7.9 for 10-year yield.

The third lowest performer last year, Univentures Plc (UV), said company returns could not be compared to others in the sector as its main business was no longer focusing on zinc oxide manufacturing, according to managing director Thanapol Sirithanachai.

UV has in fact become a specialist in developing distressed real estate projects.

To see its stock prices reflect its core business prospect, he said, it was considering shifting stock to trade in the property sector within the next year.

Another strategy to sustain income recognition in the long term is to continue increasing its investment portfolio and expanding investment in the energy business. UV offered a TSR of 6.1% for one year, -6.9% for three years, 7.4% for five years and -9% over 10 years.