PTT

OUTPERFORM - Maintained  |  Share Price THB300.00 - Tgt. THB472.00 

We believe that PTT’s 3Q11 weak earnings were caused mainly by one-off expenses relating to a gas pipeline leak and forex loss rather than economic slowdown. Given the resilience of its gas and gas-based petrochemical earnings, we expect a strong recovery in 2012.

Although PTT’s 9M11 core earnings made up 87% of our full-year estimate, we consider it to be in line and maintain our forecasts and SOPtarget price as 4Q should be weakerdue to the impact of the floods and potential inventory loss resulting
from oil price volatility. Outperform kept.
Weak 3Q11 from one-offs 3Q11 core earnings fell 20% qoq to THB25.3bn, 2.8% above consensus and just 1.2% shy of our forecast. Including THB5.2bn FX loss, net profit was THB21.6bn, down 34% qoq, also in line with consensus. Three key factors dragged down the results – higher gas expense and lower volume due to the gas pipeline leak, poor earnings from refinery and petrochemical associates, and a large THB5.2bn forex loss that PTTEP incurred on a US$2.4bn loan made
toa Canadian subsidiary.

4Q11 recovery despite flood impact
We believe the flood will have only a small impact on PTT’s earnings as oil sales accounted for only 6% of total EBITDA in 3Q11. PTT expects oil sales to decline 10.8% qoq in 4Q11 due to the flood impact. We consider the impact small compared to the rising earnings from its petrochemical and refinery associates due to higher margins.

Buy ahead of 2012 recovery
We recommend that investors buy on weakness triggered by weak results for 3Q11 and 4Q11. Key catalysts for a re-rating are
post-flood margin and demand recovery for gas, oil, and petrochemical products as margins are at depressed levels and are
expected to recover by 1Q12 due to industry rationalisation.