PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

What’s new? PTTGC announced that its PTTPE plant (1mta of Ethylene production) has been shuttered since January 31, due to a technical difficulty at PTT Utility Co Ltd (the SPP that supplies electricity and steam to the PTTPE plant). The PTTPE plant is expected to resume operating on February 8.
Comment: The impact on the sales volumes of polymers (HDPE, LDPE, LLDPE), for which the PTTPE facility supplies feedstock, will be insignificant, as the plants have some inventory on-hand. Even though the incident may result in a 2% decline in the mean utilization rate of PTTPE this year, there shouldn’t be any real impact on PTTGC’s overall Ethylene production—the firm will be able to boost Ethylene production at its other plants. But replacing equipment at facilities will involve some minor expenses.
Action: We think that this news may generate negative sentiment toward the share price. But any share price decline would present an opportunity to accumulate the stock. Chemical spreads are expected to rebound in the short-term, driven by restocking and maintenance shutdown season across the region. Moreover, the improved outlook for chemical prices and spreads later this year together with the PTTGC synergy-building and growth to be enabled from future investments will make for long-term value creation and share price upside.
The stock currently trades at a YE12 PBV of 1.1x—a 43% discount to the regional average of 2.0x—and an FY12 PER of 9.5x—a 12% discount to the Asian mean of 10.8x. We, therefore, maintain our BUY rating with a YE12 DCF-derived target price of Bt82.