PTT

PTT Plc
 

Investment thesis: We attended PTT group’s analyst
meeting yesterday. We sensed that the divestment/
restructuring of PTT’s non-core assets is likely to be a key
focus this year. The move would generate value for the firm.
While the stock has regained its outperformance over the
past week, we think its current share price remains
undemanding—a core gas PER of only 7.4x versus a SET
mean of 12x. Our PTT sum-of-the-parts valuation (a 15%
discount applies to the stock prices of its subsidiaries)
implies a share price of Bt361.
Group stress-testing: Group financial stress-testing was a
significant point of discussion. Management summarized
the testing procedures—the firm assumes possible
pessimistic scenarios to evaluate the consequences on its
financial health. Through all processes, PTT claimed that
even under the worst-case scenario, the firm and all its
subsidiaries would still be able to service debts, though their
financial performances would be affected.
Non-core asset restructuring: The divestment/
restructuring of PTT’s non-strategic assets comprises part
of its strategic risk mitigation plan to ensure resilience and
also, we believe, to realize value. Management aims to
restructure the group’s power interests under “PTT Utilities”,
which will be listed on the SET (the timeline hasn’t been set
yet). SPRC is scheduled to debut on the Thai bourse in
3Q12. Moreover, PTT International (PTTI), an international
investment vehicle of PTT group, aims to list on SET. PTTI
currently has investments in the East Mediterranean Gas
Company (EMG) in Egypt, the 1,285MW Xayaburi hydro
project in Laos and SGX-listed SAR through PTTAPM in
Australia.
NGV price de-control: PTT said that the govt is putting in
place a new NGV price regime in compliance with a cabinet
directive last year. But given that protests over the recent
NGV price hike prompted the govt to freeze the price, we
think it’s too early to conclude that the administration will
follow through with its plan. The price is to be adjusted up
by Bt0.50/kg every month to Bt10.50/kg by April—the level
at which the govt can drop its subsidy to PTT.
Further impairment losses unlikely: The firm clarified the
Bt5.8bn impairment loss posted in 4Q11. Several terrorist
attacks in Egypt last year halted work on an EMG pipeline
(25% stake), severely impacting EMG’s operation. The
aforesaid write-off represents roughly one-third of PTT’s
total investment in EMG. But management claimed that a
further impairment loss is very unlikely. Existing EMG
pipeline assets haven’t been affected by the attacks.