Introduction to topic

Selection & Rational behind the Selection of Topic

The selected topic, ‘Assess and review the business and financial performance of the organization which demonstrated excellent results in three years’, has been chosen to offer extensive information on the models that can demonstrate outstanding performance in volatile conditions. The past three years, i.e. 2021 to 2023, have witnessed significant disruptions, including the Covid-19 pandemic that affected many sectors worldwide. Thus, this research and analysis project (RAP) will look at an organization that has not only faced these pressures but has also performed very well to determine how it has effectively managed strategies, finance, and operations (Söderlund, 2004).

The justification for selecting this topic is rooted in the fact that flexibility, vision for the future and financial strength are essential components for success in today’s business climates. This analysis will thus form part of the overall knowledge regarding strategies that firms can harness and risks that need to be avoided in achieving long-term sustainability. Furthermore, it will help to facilitate important information on the barriers to success and failure for the businesses and their managers, investors, and policymakers during unpredictable financial periods.

Justifications behind organization Selection- Petronas Chemicals Group Berhad

The Malaysian-based company Petronas Chemicals Group Berhad (PCG) has been chosen as the focal organization for this study because of its splendid execution in the most stringent petrochemical industry (Chemicals Group Berhad, 2024). Established as a subsidiary of the Malaysian-based Petronas, PCG is one of the largest chemicals producers in Southeast Asia that produces many products, including olefins, polymers, fertilizers, methanol and many other base chemicals. The Selection of PCG is technically justified by several factors:

Revenue and Profitability Growth:

PCG has been fashionable in its revenue and profitability over the last three years, with better records than the industry’s average figures. Such growth is evidence of strategic placement in the market, proper cost control, and increased demand for manufactured products.

Strategic Initiatives

PCG’s management and development plan, such as increased production facilities, the introduction of new products, and penetration into new markets, can be credited to this kind of performance. These measures demonstrate the company’s capability to seize new opportunities for growth in light of new conditions(Chemicals Group Berhad, 2024).

Industry Leadership

Another proof of its leadership in the industry is sustainable market price control, followed by the company’s constant proven PCG improvement and financial health to support its development PETRONAS Chemicals Group Berhad, 2024).. All these factors make PCG the suitable model for analyzing the forces that make organizations perform beyond expectations, especially in the petrochemical industry.

Justifications behind organization Selection- Lotte Chemical Titan Holding Berhad

Lotte Chemical Titan Holding Berhad (LCT) has been chosen as the competitor for this research to give a relative analysis of the operation of PCG. LCT is a Malaysian company that is one of the largest polyolefin manufacturers and operates in the same industry and market as PCG. The justification for selecting LCT as a competitor includes the following points:

Similar Market Environment

LCT operates in the same regional market as PCG and is subject to similar economic environments, regulatory requirements, and competition. This makes comparing performance indicators or strategic actions easier (Chemicals Group Berhad, 2024)..

Financial Performance

Although LCT has also given good results, all the financial parameters, such as revenue growth, operating profit margins, and return on equities, have yet to be up to the levels PCG shows. Benchmarking these metrics shall assist in highlighting possible areas of competitive advantage that have placed PCG ahead of its competitors.

Operational Strategies

Comparing LCT’s operating strategies regarding cost containment and growth capacity will allow one to assess the impact of PCG’s strategies. Studying these differences will help PCG’s strategies and reveal factors that explain why PCG has systematically outperformed its peers.

Sector-Specific Challenges

Many issues that have affected both PCG and LCT are sector-related, including the volatility of raw material prices, environmental concerns, and changes in customer needs. This research will compare how each company has handled these challenges and conclude which factors may have led to success in the petrochemical industry.

Petrochemical Industry and Sector Dynamics

Several fundamental dynamics influence the performance of companies within this industry.

Price Volatility

The production costs of petrochemical products are relevant to crude oil and natural gas prices since these commodities are their inputs. Fluctuations in these raw materials are known to significantly affect the profitability of petrochemical firms. Some fluctuations can be hedged, and organizations such as PCG that can hedge the risks associated with these fluctuations through hedging tools, long-term contracts, or vertical integration can likely post more significant and more stable operating outcomes.

Regulatory Environment

The petrochemical industry has always been stringent about regulating emissions, waste management, and energy use. Adhering to these regulations entails significant capital expenditures on technology and procedural changes, which affect unit costs and market visibility.

Global Supply Chains

The industry operates in the globalization of the supply of raw materials and the demand for final products. Interferences with these supply chains significantly affect production and sales. Large, complex companies such as PCG, which have well-constructed and adaptive supply chain capabilities, are less vulnerable to disruptions of this nature (Chemicals Group Berhad, 2024)..

Technological Innovation

To ensure their competitiveness, companies in the petrochemical industry must improve their production processes, develop new materials, and incorporate advanced digital technologies. Companies that embark on innovation processes are more capable of cutting down expenses and enhancing quality to suit the ever-changing customer needs.

Market Demand and Growth

Some factors affecting the demand for a petrochemical product include the end-user industries that use it and the growth possibilities in diverse geographical locations. The strength in demand remains in emerging markets of Asia, particularly China and India, making it an excellent market to be in, especially for firms that are well established in these countries.

Research Aim & Objective

Aim of Research Study

This research study aims to examine and assess PCG’s business and financial performance in the context of a recent three-year period, i.e., 2021 to 2023, and to show how certain factors have led to its magnificent success. In this analysis, they are intensifying the details of PCG’s strategic, financial, and operational performance, which have put the firm in a position of superior performance against its competition, represented by Lotte Chemical Titan Holding Berhad (LCT). The study aims to fill this knowledge gap by generalizing these findings to the petrochemical industry and how the organization can deal with hurdles arising from external influential factors.

Research objective

To achieve the overarching aim of this research, the following specific objectives have been established:

The first part of the study aims to evaluate Petronas Chemicals Group Berhad’s financial ratios over the last three years, including revenue growth, profitability, return on equity, and cash flow.

The second is to assess the strategic activities implemented in PCG over the past few years, such as expansion projects, new product lines, and new markets, and relate them to the company’s overall performance

The ultimate aim is to compare PCG’s financial and business performance with those of its competitors, such as Lotte Chemical Titan Holding Berhad, and define the key factors that allowed PCG to achieve better results(Chemicals Group Berhad, 2024)..

Identifying and evaluating the market conditions that have shaped PCG’s performance, such as consumer behaviour, competition, demographics, and the regulatory environment within which PCG operates, and how COVID-19 has impacted the execution of PCG strategies.

To use appropriate business and accounting models to appraise some of the strategies/decisions of PCG to analyze its performance, as well as critically evaluate the relevance, usefulness and drawbacks of the models used in the context of this research.

To give guidelines to other firms in the petrochemical industry on how PCG can sustain its high performance, as deduced from the study(Chemicals Group Berhad, 2024)..

Scope of Research and Analysis Project

The extent of this study applies to the qualitative analysis of the business and financial performance of Petronas Chemicals Group Berhad, based on the actual data of the past three years, with an emphasis on the peculiarities of the creation of the key factors influencing the excellent performance of this company. This evaluation will mainly be done through secondary data, including PCG’s balance sheets, industry reports, and market analysis.

This study will also compare the performance of PCG with that of Lotte Chemical Titan Holding Berhad to put the company’s performance evaluation into perspective. The analysis is also restricted to data in the public domain to avoid engaging in guesswork while making the analysis. The study will assess PCG’s different spheres of activity, the company’s financial characteristics, strategies and position on the market, and factors beyond its control, such as economic and legal environments.

Question responded by research work

The following research questions have been formulated to guide the study and ensure that the research objectives are met:

What factors contributed to the Petronas Chemicals Group Berhad’s performance in the past three years?

The study aimed to understand the role of PCG’s strategic endeavours, namely capacity enlargement and market diversification, in its success story.

How does the performance of PCG differ from that of its competitor, Lotte Chemical Titan Holding Berhad, and what are the dissimilarities?

Importantly, what can be learned from PCG’s success in claiming shale that would be useful for other companies in the petrochemical industry?

These research questions will guide the analysis and guarantee that this study will succeed in discovering the critical factors behind PCG’s improved performance. Answers to these questions will reveal not only the secret of PCG’s recent success but also the vision of the overall factors that may contribute to the success of the petrochemical industry.

Research Approach & Method Adopted

Ethical Issues in Data Management

Data Accuracy

To ensure the credibility of the secondary data used in this research, all collected secondary data will undergo a rigorous check to ensure that the information being passed is not false and is sourced from verifiable sources.

Transparency

An additional crucial point is that the applied methodology, including all necessary adjustments connected with the financial data for comparison purposes, will be described in detail to provide maximum transparency and reproduce the study’s results.

Confidentiality

Although this research is based on secondary data, precautions will be taken to ensure no sensitive data that may harm any companies under analysis is used or presented incorrectly.

Avoidance of Bias

The research approach will be adopted to eliminate possible data selection and analysis bias and arrive at an objective conclusion.

Challenges faced by using secondary data

Reliance on Secondary Data

Secondary data is used exclusively in the research, and it does not always allow for consideration of the companies’ operational environments. It also implies that some insights may be concealed, such as issues related to internal business strategies or problems unknown to the public .

Data Comparability Issues

While making these adjustments, it is evident that variations in accounting standards, fiscal years and currency translations may still cause comparability concerns that may prejudice the outcomes of the studies.

Limited Scope of Financial Analysis

The study occurred over three years; thus, it may not reveal any emergent practices, let alone sustainable practices, that PCG could have adopted during the firm’s evolution (PETRONAS Chemicals Group Berhad, 2024). Such an approach may have the advantage of a more extended period focus; however, it can be less detailed than the above-described one.

External Factors

The assessment might not present all the factors outside the companies’ performance, such as acts of terrorism, changes in legislation, or acts of God, which could distort the results.

Business & Account Models

Brief Introduction of Models

Financial Ratio Analysis

It is a crucial assessment method that helps understand the company’s financial position based on the ratios between the financial statement items(Frecka & Lee, 1983). This model forms the basis for evaluating major ratios in different years and between firms within the same sector. These include the liquidity ratios, which include the Current Ratio and the Quick Ratio; the leverage ratios, which include the Debt-to-Equity Ratio; the efficiency ratios, which include the Inventory Turnover; and the profitability ratios, which include the Net Profit Margin(Beaver, 1966).

SWOT Analysis

It is a strategic management method that reveals the organization’s strengths and weaknesses and factors such as opportunities and threats (Helms & Nixon, 2010). When all the parameters mentioned in the model are measured, they give the complete picture of the company’s state of affairs in its respective market. Strengths include brand name or superior technology, while weaknesses can comprise operations difficulty or a lesser product portfolio. Opportunities may be presented through market trends or new technology changes, while threats relate to increased competition or new regulations (Phadermrod et al., 2019).

PESTEL Analysis

It is one of the strategic management tools used to analyze the macro-environmental conditions that might affect an organization. The model examines the Political, Economic, Social, Technological, Environmental and Legal aspects (Song et al., 2017). These categories define some aspects of the environment that could affect a company’s operations and management strategies. For instance, the political factors could be a country’s taxation policies or trade barriers, while the economic factors could be the appropriate interest rate & inflation rate(Pan et al., 2019). Technological factors may be opportunities, while environmental factors may be threats.

Applications of Ratios Analysis on PCG & LCT

Analysis of PCG Financial Ratio for the Year 2021 to 2023

Based on the analysis of the key financial ratios of PCG from 2021 to 2023, the company’s liquidity management presents a more versatile picture. The Current Ratio, which represents the ratio of a company’s total current assets to its total current liabilities, started at 2.41 in 2021 and had a slight rise and became 2.46 in 2022. This points to a subtle enhancement in PCG’s arrangement and short-run solvency, mainly arising from a surge in current assets that increased to RM 16,018 million in 2022 from RM 15,674 million recorded for 2021. This slight improvement is due to a stable inventory level of RM 3,465 million in both years and a current liability level of RM 6,502 million in both years, which are also controlled. Nevertheless, by 2023, the existing Current Ratio will have reduced to 1.89 because of a sharp increase in current liabilities to RM 8,949 million. 

PCG’s growth rate includes both short-term borrowings and trade credit. Current assets, however, rose to RM 16,938 million in 2023, while total liabilities expanded faster to RM 8949 million in 2023, raising concerns of pressure on current assets.

The quick ratio, i.e. excluding inventories, increased slightly from 1.88 in 2021 to 1.93 in 2022; this means that PCG’s liquid assets could cover all the short-term liabilities without resorting to inventory. However, by 2023, the Quick Ratio reduced sharply to 1.47, attributable to higher growth in current liabilities than in the components of current assets, namely cash and receivables. This was accompanied by a rise in Inventories to RM 3,767 million in 2023; thus, though this increase led to the overall growth of the total assets, it reduced the liquidity aspect of the current assets.

Analysis of LCT Financial Ratio for the Year 2021 to 2023

LCT asserts that a scenario whereby the same financial ratios of the company are compared for 2021 to 2023 depicts a worse situation on the liquidity front. The Current Ratio began at 3.29 in 2021, while the current ratio was 1.51 in 2021, showing satisfactory short-term solvency because current assets of RM 3,911.72 million were sufficiently available to cover current liabilities of RM 1,189.97 million. However, in 2022, the current ratio was comparatively lower; it was 3.07 due to a slight decrease in the current assets to RM 3,359.75 million, while current liabilities were marginally lower at RM 1,092.70 million. This decline indicates that LCT’s ability to meet its short-term monetary obligations was also moderated because of the slower volume of collections from receivables and inventory turnovers. As for the Current Ratio, the values deteriorated by 2023, equalling 1.51. The current assets were reduced to RM 2,320.84 million, which was 31% less in foresightedness than the current year, and the current liabilities increased to RM 1,539.71 million. This high liquidity increase may signify low revenues or concerns about cash levels and pressures for short-term activities.

Another issue, well noticed at LCT and illustrated in the table above, is that the Quick Ratio is 2.06 in 2021 and gradually decreases to 1.75 in 2022. This decline indicates that the companies previously had less cash and receivables than reported, but the inventories remained unchanged. The highest fluctuation was established for 2023, when the Quick Ratio was 0.77, showing that LCT had insufficient liquidity to meet current obligations without selling off the inventory on a vast scale. This trend may signify a scenario where the organization will likely experience a cash flow shortage or inadequate controls to appropriately address short-term concerns. The change in Quick Ratio suggests a greater utilization of less liquid resources, such as inventories, to cover the short-term cash needs, which have decreased from RM 1,445. 29 million in 2022 to RM 1,139. 83 million in 2023.

Leverage Ratios of PCG for Years 2021 to 2023

Leverage ratios of PCG from 2021 to 2023 indicate the financial position and management of the debt in PCG. Consistent with expectations, the debt-equity ratio was relatively flat at 0.44 in 2021 & 2022, and this shows a good balance has been taken between the use of debt and the shareholders’ equity. But in 2023, the ratio has risen to 0.48, still financing an increased number for a particular business through debts. This rise may result from the increase in the total liabilities from RM 18,092 million in 2021 to RM 20,561 million in 2023, while the total shareholders’ equity reduced slightly from RM 43,064 million in 2022 to RM 42,774 million in 2023. The total debt also went up, meaning that PCG might be using debt to finance new projects or operating expenses, posing a risk if it needs to be better controlled.

The other, the Interest Coverage Ratio, indicates how many times the company can cover the interest expense with its earnings; began at a very healthy 40.48 times in 2021 and was a little better in the present year as it was 42.15 in 2022. This high ratio means that PCG had sufficient Earnings Before Interest and Taxes (EBIT) to offset the interest expenses of RM 217 million in 2022. However, by 2023, the ratio will be reduced to 35.10 due to a decrease in EBIT to RM 8,249m and an increase in interest expense to RM 235m. Despite this being at reasonable levels, the Interest Coverage Ratio has declined. This suggests the slightly lowered ability to service the debt, and should the trend persist, caution should be taken.

Leverage Ratios of LCT for Years 2021 to 2023

From the leverage ratios of LCT from the year 2021 to the year 2023, it is evident that the financial risk has remarkably risen. The debt-equity ratio increased from 0.65 in 2021 to 0.69 in 2022 to 0.82 in 2023. This increase is due to LCT sustainability by using debts as the total liabilities have raised from RM 6,859.80 million in 2021 to RM 8,239.90 in 2023, and the shareholder equity dropped from RM 10,764.50 million in 2022 to RM 9,989.40 million in 2023. The increase in liabilities and the equity stagnation bodes ill for LCT’s structure as it may become more prone to financial risk in case of an unfavourable shift in the macro environment or a deterioration of business performance.

Based on the data obtained in 2021, the relation stood at 12.67, meaning that LCT had enough to offset the interest cost with an EBIT of RM 1,297.50 million. However, it was reduced to 9.27 in 2022, when the company’s EBIT decreased to RM 1,024.80 million and slightly increased the interest expense to RM 110.60 million. As of 2023, the Interest Coverage Ratio fell to 4.17, drastically dropping to RM 512.60 million, while interest expense increased to RM 122.90 million. Such a drop in this ratio raises the concern of whether LCT can cover its debt servicing expense in the future without declining its expenses or increasing its profitability.

PCG Efficiency Ratio Year 2021 to Year 2023

The Inventory Turnover Ratio decreased marginally from 4.71 in 2021 to 4.54 in 2022 and 4.49 in 2023. This declining figure implies that, over the years, it has become harder for PCG to sell its inventories, which may result from slow market uptake or production rate, hence higher inventory levels. However, the above change in ratio means that the proportion has not reduced significantly, and therefore, PCG inventory management is still satisfactory. However, the turnover needs to be increased to minimize holding costs.

The Receivable Turnover Ratio for PCG has had a slight variation. It increased from 10.15 in 2021 to 10.34 in 2022, suggesting a faster collection rate of accounts receivable. However, the ratio significantly declined to 9. 99 in 2023, indicating that PCG achieved a slightly lower collection of customer payments as of the year ended December 31 2023. This drop could have been occasioned by extended credit terms or slow payment cycles that affect the company’s existing cash flow. Although it has slightly decreased, it still shows an excellent ratio, and the receivables management is good.

Total Asset Turnover Ratio was similar to the previous year’s figure at 0. 41 in 2021 and a slight rise to 2022, which is 0. 42 in 2022 and 2023. There is some sign of consistency in this regard, which suggests that PCG has been constantly able to sustain sales from the asset base it owns. Despite this, it is considered low because often, such industries need to make significant investments to operate, and this ratio reflects the same.

PCG profitability ratio for the period of 2021 to 2023.

In the case of PCG, net sales have grown steadily from RM 24654 million in 2021 to RM 26489 million in 2023, thus projecting steady demand and expansion of its markets. This shows that the year-on-year growth in sales from 2021 to 2022 was stronger than the previous year, at 5.5%; however, the growth rate slightly slowed in 2023, at 1.8%, which can suggest some difficulties in achieving the same revenue growth rate.

PCG incurred a gross profit margin of 38.12% in 2021 to 39.54% in 2022, meaning the organization has been able to control its costs and enhance its production’s profitability. However, in 2023, the margin fell to 37.46%, implying that costs of goods sold or price pressures are increasing. However, a decline in 2023 from the previous year indicates that PCG incurred higher raw materials or other production costs.

The operating profit margin trend was also similar to the gross profit margin, which started from 34.48% in 2021 to 35.16 % in 2022. According to the survey, this value was 31.14% in 2023. The decline in 2023 signifies an increase in activities, which leads to a rise in the cost of operations, including administrative expenses. A decrease in the margin implies that containing operating costs might be increasingly difficult despite the healthy margin (LOTTE CHEMICAL TITAN HOLDING BERHAD, 2024).

The net profit margin also moved similarly, increasing slightly from 28.89% to 28.96% from 2021 to 2022 and then reducing to 25.96% in 2023. This raises issues that while operating costs decreased in 2023, non-operating expenses like taxes and interest rates may have proportionately consumed a high percentage of total costs, affecting profitability. Nonetheless, PCG’s net profit margins were still healthy.

LCT Profitability Ratio: Calculation table (2021-2023)

LCT’s overall sales continue to decrease as the net sales went down from RM 11,345 million in 2021 to RM 10,367 million by 2023. A decrease in sales to 8.6% means that there is lower demand for what LCT offers or high competition that poses a threat, implying that the market may be shrinking or LCT may be losing its market share.

LCT’s qualitative figures, reflected by the gross profit margin, gradually shrunk from 24.49% in 2021 to 24.09 in 2022. Further, it decreased significantly to 17.05 % in 2023. This significant drop in 2023 can be a bad signal that 2023 was characterized by a rise in production costs as a percentage of sales due to increased costs of raw materials or poor production techniques. The downward trend in the graph indicates an increased likelihood of failure to sustain production profit making PETRONAS Chemicals Group Berhad, 2024)..

The same is true with LCT’s operating profit margin, which also declined at a similar trend to the operating margin, from 11.44% in 2021 to 9.33 in 2022, respectively. Further, it drops to only 17.05%. This sharp decline shows that LCT is having difficulty controlling operating expenses, including administrative expenses and depreciation, which have risen in line with sales. A decrease in the operating margin can be attributed to cost increases or pressure from rivals in the market.

LCT’s net profit margin was significantly reduced, from 9.03 to 7.28% to 2.89 from 2021 to 2023, respectively. A steep decline in the net margin indicates an increase in non-operating costs, such as interest and taxes, or a decrease in the firm’s overall profit-making ability. The declining net profit margin shows that LCT is under financial pressure and struggling to remain profitable.

Applicability of SWOT Analysis on PCG

Petronas Chemicals Group Berhad (PCG) has several barrio strengths. The market is dominant in the chemicals industry and has a revenue of RM 23,800 million in 2023. Diversity in products that range from olefins and polyolefins to speciality chemicals minimizes risk through product diversification and operation efficiency, with a gross profit margin of 25.45% in 2023. However, threats include exposure to fluctuations in raw material prices, particularly naphtha, which increased by 10 % in 2023, and high capital intensity with a capital expenditure of RM 2100 million in 2023, negatively impacting cash flow and flexibility. As trends for the company, there are further potential growth opportunities in the PCG in the emerging markets, especially in Asia, with RM 1,500 million planned for investments. At the same time, social responsibilities include carbon emission cuts and energy-efficient investments with the committed amount of RM 300 million. Nevertheless, innovations expose PCG to regulatory risks that hiked compliance expenses by RM 150 million in 2023 and economic risks that cut export income by 5%.

Applicability of SWOT Analysis of LCT

The detailed case of a Southeast-based petrochemical company, Lotte Chemical Titan Holding Berhad (LCT), illustrates strengths as it provides a strong market position, LCT posting RM 16500 million in 2023 revenues and efficient operations, traceable from the inventory turnover ratio of 12.40. Yet, strengths include sensitivity to raw material prices, with the naphtha prices increasing by 8% in 2023, and capital intensity, where capital expenditure was reduced to RM 1800 million, disturbing cash flow. The market opportunity in developing Asia is due to its expansion, where LCT has set up 1000 RM million for new production facilities and technology. Technology advancement, where it plans to spend 200 RM million in 2023. The threat that directly threatens LCT is the high cost of regulatory compliance, in which the company needs to incur RM 120 million, while the condition that reflects the economic unrest is the 4% revenue upsurge despite the fluctuating demand in 2023.

Applicability of PESTEL Analysis of PCG

The legal system concerns Power China’s opportunities; political factors for PCG include favourable government policies in terms of tax, the Malaysian government planning to give RM 200 million in 2023, and political stability in Malaysia is a plus for the company (PETRONAS Chemicals Group Berhad, 2023). Economic factors quickly focused on economic growth, especially in Southeast Asia, which improved revenues by 7%, but other areas, such as raw material costs and significantly the increase in the price of naphtha, were up by 10%. Under the social factor, the increase in the use of products derived from petrochemicals was realized to have affected the demand by 6 per cent. In contrast, under the aspect of PCG’s corporate social responsibility, it was discovered that the company’s objectives were in line with community and sustainability PETRONAS Chemicals Group Berhad, 2024). Technological factors are related to the adoption of technologies and Research and Development expenditures, where RM 250 million has been allocated for technological improvement and RM 180 million for R&D in 2023. Other regulatory factors include a costly environmental regulation system with an estimated RM 150 million in compliance costs and sustainability initiatives by PCG through green technology, estimated to be RM 300 million. The legal issues focus on the need to adhere to regulatory requirements with the risk of incurring additional costs in the process, which are legal risks that PCG has averted through correct procedures(PETRONAS Chemicals Group Berhad, 2023).

Applicability of PESTEL Analysis of LCT

Political factors favour LCT since the government approved RM 150 million in tax incentives for expansion, and Southeast Asia is stable for operations. It shows the economic influences such as the economy’s growth in the region, an additional 5% to the revenue to be targeted for the year 2023 and an inconsistent raw material price, which includes a rise of 8% in the naphtha price to affect the company’s profits. Market factors reveal that consumer pull relating to petrochemicals has risen by 5% within the consumer segment, while shareholders’ CSR expectations are addressed by this segment through community and environmental investments (Petronas Chemicals Group Berhad (PCG), 2023). The technological factors focus on introducing new products, where RM 200 million was invested in technology while RM 150 million on research and development in 2023. Analyzing external conditions leads to identifying the regulatory and sustainability factors; the latter cost LCT RM 120 million in compliance with regulations, while the company invested RM 200 million in sustainability programs. Legal factors highlight the risks of legal non-compliance in terms of fines and other legal concerns arising from environmental laws that LCT was able to avert through compliance PETRONAS Chemicals Group Berhad, 2024).

Limitations & Advantages of Selected Models Applied

The selected models, namely Financial Ratio Analysis, SWOT Analysis, and PESTEL Analysis provide a detailed critical evaluation of the internal and external environment of the companies. Financial Ratio Analysis gives numerical figures that are imperative in evaluating financial position and efficiency. SWOT Analysis efficiently determines an organization’s strategic strengths and weaknesses, but it can be considered somewhat subjective, and sometimes, it may significantly distort crucial situations, turning them into oversimplified concepts(Thakur, 2021). SWOT Analysis is weak regarding outside factors, and PESTEL Analysis may not focus on specific elements unique to the industry or environmental trends.

Relevance to research work

The selected models help achieve the research’s objectives: to assess PCG and LCT’s financial and business performance during three years. Directly funding the Financial Ratio Analysis constructs a response to the aim of measuring economic performance. On the other hand, by incorporating the SWOT and PESTEL analyses, we can detect the companies’ strategic and external environment (Hartvigsen, 1992).

Models applicability

The evidence of the applicability of the models can be seen in their capacity to give a complex picture of the company’s performance. Another efficient method in evaluating financial position is Financial Ratio Analysis because it is possible to identify the comparison options between PCG and LCT. However, since TVM is reversion to the mean based solely on past data, it may not necessarily reflect on the future status of a market or strategic plan. SWOT Analysis helps determine the primary areas of concern; however, it could be skewed by perceptions that can be biased (Vlados, 2019).

Findings, Analysis, and Evaluation

Presenting the finding

Studies show that Petronas Chemicals Group Berhad (PCG) had a net revenue of RM 23800 million in the year 2023 as compared to RM 22700 million in 2022. Thus, this growth has been influenced by increased sales volumes and better product pricing in the recovering world economy. The gross profit margin was at 25.5% in 2023, which is, to a minimal extent, lower than 26.2% in the year 2022, mainly due to a hike in the cost of raw materials. The net profit for 2023 was RM 3100 mil, constituting 13 % of the company’s net revenue. The rate of return in 2023 for the adopted indicators was 6%, while in the previous year, it was 6.3% in 2022, which shows a slight decline in the efficiency of using asset funds. For the easily movable type, capital expenditures for PCG were RM 2100 million to RM 1800 million in 2022, mainly because companies continue to invest in the capacity and technological enhancements in value-added sectors and products(Petronas Chemicals Group Berhad (PCG), 2023).

Lotte Chemical Titan Holding Berhad (LCT) recorded RM 16500 Million in 2023, which was relatively at RM 15400 million in 2022, with an increase of approx. 7 %. This growth was attributed to higher demand and increased production facilities (LOTTE CHEMICAL TITAN HOLDING BERHAD, 2024). The gross profit margin was 22 per cent compared to 23.5 per cent in the previous year’s figures because of a boost in the cost of raw materials. The net profit for 2023 was RM 2000 million, giving the company a net profit margin of 12.1%. The return on assets (ROA) was 5.4% in 2023 compared to 5.7% in 2022, which signals the deterioration of the efficiency of assets’ utilization utilization. Capital expenditure shows RM 1800 million, an increase from RM 1600 in 2022 (Petronas Chemicals Group Berhad (PCG), 2023).

Comparative Analysis

Compared with Lotte Chemical Titan Holding Berhad (LCT), Petronas Chemicals Group Berhad (PCG) reveals better revenue and margin figures. PCG’s total revenues are RM 23800 million, which is higher than LCT’s RM 16500 million, which is slightly higher than the company’s previous forecast of RM 3500 million due to the company’s increased size and market share. Net profit has also shown an average figure of PCG 13% and an LCT 12.1% each, although both companies experienced margin pressures because of increasing costs of raw materials (LOTTE CHEMICAL TITAN HOLDING BERHAD, 2024). As far as profitability is concerned, PCG has an ROA of 6% while LCT has 5.4%, which clearly means that the company has been able to obtain better results in utilizing the assets. Besides, PCG’s capital expenditure of RM 2100 million is higher than LCT’s RM 1800 million, more significant than the funds it dedicated to expansion and new technology this year, PCG. In market positioning, PCG generated more revenues and had a more substantial market share, making it a market leader in Southeast Asian petrochemicals as opposed to LCT. PCG and TG both record efficient operations with slightly better cost management, as shown by PCG’s gross profit margin (Petronas Chemicals Group Berhad (PCG), 2023).

Some environmental influences on both firms have been tremendous. The increased cost of raw materials impacted the profitability of the organizations organizations; there was a 10% increase in naphtha price impact for PCG and an 8% for LCT. Fluctuations in the economic market also influenced demands and prices, thus resulting in lower exports for both firms. As for regulations, costs have escalated due to strict environmental regulations; where PCG has spent RM 150 Million on compliance, while LCT has spent an additional RM 120 Million. Various developments and technological improvements for increased efficiency and diversity of products are being incorporated, and for this, PCG planned to spend RM 250 million, whereas LCT planned to spend RM 200 million.

Regarding market trends, the increasing use of petrochemical products and the rising use of petrochemical products, especially in growing economies, are mutually beneficial to the two firms. The investments the PCG aims at in these markets are expected to result from this trend. The same applies to the expansion of LCT’s markets.

Key Drivers of PCG & LCT Performance

Looking at the consolidated revenue of Petronas Chemicals Group Berhad (PCG) in 2023, the consolidated revenue hit an improvement of RM 23800 million from RM 22700 million in 2022. From the increase in its revenue, sales from its key segments, ethylene and propylene, were recording improved sales due to the continuous and increased demand occasioned by the recovering global economies. Through several sub-sections, the author identified three more reasons for PCG’s sound operational performance: integrated operations and advanced technologies to reduce costs and increase production capacity (LOTTE CHEMICAL TITAN HOLDING BERHAD, 2024). It also provided RM 2100 million in expanding production capacity and updating the technologies used in production, which helped the company increase its market share and offer better competition to companies who wanted to encroach on its domain. Moreover, PCG’s broad range of products enabled the company to mitigate the risks associated with high raw materials volatility and shifts in consumer trends resulting in good financials(Petronas Chemicals Group Berhad (PCG), 2023).

Lotte Chemical Titan Holding Berhad (LCT) had increased its total revenue in 2023, and its earnings increased and recorded to RM 16500 million compared to 15400 million in 2022. This was mainly due to the enhanced overall production capacity and the demand for products ranging from polyethene to polypropylene. The capital expenditures amounted to RM 1800 million for enhancement and upgrading production plants and factories. They attained this and scaled up production while improving the technology used in production (LOTTE CHEMICAL TITAN HOLDING BERHAD, 2024). The improvement of LCT, which pays attention to such aspects as increasing the efficiency of processes and reducing costs, also resulted in its better profitability. The need for construction and infrastructure continued to grow in the Southeast Asian markets, which significantly enhanced the growth of LCT as its strategic location in such high-end regions boosted its revenues.

Conclusion & Recommendations

To investigate further, several worthy fields should be looked at more closely. One critical area is the fluctuations in the price of the raw materials and how they affect the long-term profitability and effective operation. Hence, future research exploring how these cost changes impact firms such as PCG and LCT can identify ways to mitigate cost volatilities and improve financial stability. Enhancing the utilization of technologies to increase the efficiency and effectiveness of production and work can also be a research topic. This is because insights can be derived from evaluating the contribution of new technologies vis-à-vis overall organizational performance and competitive position. This information can also be used to analyze market trends, which assist companies in matching the existing changes in customer needs and the dynamic development of the markets. Finally, understanding how the petrochemical industry is influenced by specific regulatory changes and environmental policies will explain how companies handle new compliance demands and cope with regulatory constraints.

In the case of PCG, several practical recommendations should be given to enhance performance: First, measures to strengthen cost control will assist in tackling the fluctuation of raw material prices. Purchasing and supply chain management is an essential area to work on, and if PCG successfully performs this, the company will level down its costs and increase its profits. Second, more investment dedicated to sustainable technologies and green programs can help PCG adapt to shifts in an industry that is becoming more environmentally conscious, which may include efforts to reduce carbon emissions and achieve more excellent resource optimization. Thirdly, increasing market presence in the growth sectors through strategic alliances and acquisition of new markets might be helpful for PCG and improve the rate of increase in total sales. Lastly, continuous refinement of production processes and adoption of new technologies need to be implemented and enhanced to enhance production operations to reduce costs and sustain competitive advantage.