PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

In line with estimate: PTTGC posted an FY11 net profit of Bt30,033m, up by 84% YoY. Stripping out extraordinary items, FY11 core earnings would be Bt31,599m, up by 138% YoY. The result was in line with our estimate and the consensus. Because of the merger, PTTGC didn’t offer disaggregated numbers for 4Q11. Based on available information, our preliminary estimate suggests an 4Q11 net profit of Bt4,082m, down by 38% YoY and 34% QoQ. That would be somewhat below our estimate and the consensus, due to a slimmer-than-expected PX spread and higher-than-anticipated extra expenses associated with the merger.
Results highlights: The strong earnings growth was driven by: 1) greater sales volume, led by olefins (capacity expansion), 2) higher GRM—market GRM rose 24% to $6.4/bbl; accounting GRM increased 33% to $7.2/bbl, 3) fatter chemical spreads and 4) a lower effective tax rate to 8.6% in FY11 from 17.1% in FY10, due to BOI tax privileges.
The Ethylene-Ethane spread increased 11% YoY to $695/t, while the Propylene spread jumped 31% YoY to $894. The HDPE-Ethane spread went up 13% YoY to $881/t and LLDPE spread surged 53% YoY to $822/t. MEG spread rose 10% YoY to $854/t, while, the PX-condensate spread bounced 56% YoY to $616/t. But the BZ-condensate spread dropped 37% YoY to $160/t.
Outlook: PTTGC’s earnings should rebound QoQ in 1Q12, driven by fatter GRM and chemical spreads and greater sales volume from PTTCH’s facilities, as gas supply from PTT has normalized. The Aro II and I4-1 plants will shut for 40 days for scheduled maintenance, but volume expansion at PTTCH’s facilities should more than offset the effect of the lost production.
What’s changed? We have revised up our FY12 net profit forecast by 4% to Bt32,870m in order to factor in MS’s 2012 oil price revision. 
Recommendation: Expectations of a GRM and chemical spread recovery-led earnings rebound in 1Q12 should boost the share price in the near-term. Furthermore, the improved outlook for chemical margins next year together with the prospects for synergistic benefits and growth to be enabled by future investments will make for long-term value creation and share price upside. PTTGC currently trades at an FY12 PER of 10.2x, consistent with its long-term mean and a 9% discount to the regional average.