Tipco Asphalt shares tumble as US sanctions block purchase of Venezuelan oil

TASCO shares were quoted at Bt20.40 per share on Monday morning, falling from Friday's close of 23.90.

The move caused the company to temporarily close the oil refinery in Malaysia's Kemanan until the US sanctions on Venezuela are lifted or it procures oil from other countries instead of Venezuela.

An analyst at Yuanta Securities said this factor had seriously impacted TASCO because 50 per cent of asphalt sales, up to 2.2 million tonnes per year, came from Venezuela's oil, while another 50 per cent came from oil from third parties.

"The freeze in the procurement of Venezuelan oil will hit the company's output. Although the company can procure oil from other countries, the company's cost would increase and their output would also be lower. Production of asphalt from other oil sources cannot match Venezuela's oil," the analyst said.

The analyst explained that TASCO's oil capacity was currently at 4.1 million barrels of which 2.3 million barrels came from eight oil silos and 1.8 million barrels came from rented floating storages whose contract will expire in February 2021.

"This factor would not impact TASCO's normal profit in 2020 because the company can still produce asphalts until the first quarter of next year, but its normal profit in 2021 would drop to between Bt1.5 billion and Bt1.8 billion if the company cannot procure oil from other countries, causing the share target price at the end of 2021 to drop by approximately Bt12 to Bt15 per share from the current target price of Bt31 per share," the analyst said.

"However, the company's normal profit in 2021 would move to between Bt2.2 billion and Bt2.5 billion if the company can procure oil from other countries, causing the share target price at the end of 2021 to drop by approximately Bt5 to Bt8 per share."

The analyst advised investors to avoid TASCO's shares at the moment.