PTT

PTT Plc

Investment thesis: PTT remains our top pick within Thai Energy space. The forecast oil price retreat and the sector’s bottom-line contraction in 2Q12 will sustain the stock’s relative outperformance against other Thai Q&G counters. Its operational numbers will strengthen further in 2Q12, led by record gas throughput and a recovery in GSP output volume. A further NGV price adjustment by mid May would prompt a further re-rating, as the move would boost confidence in the execution of the govt’s liberalisation plan for domestic energy prices—principally NGV and LPG.  
Record profit expected in 1Q12 … We anticipate a 1Q12 profit (due to be announced on May 14) of Bt35,877m, up by 115% QoQ and 4% YoY. PTT’s strongest-ever earnings were driven by huge gains on FX and crude inventory and solid performances by all subsidiaries. The firm’s operational performance improved only modestly, as the one-month shutdown of the sixth GSP limited its GSP production (though chemical-related GSP product prices rose slightly). Gas sales, however, recovered strongly to 4,285mmcfd from 4Q11’s 3,919mmcfd.
…bottom-line squeeze in 2Q12, but core number will rise … While we are subdued about the 2Q12 net profit outlook, as extra gains from PTT and all subsidiaries (about Bt12bn to book for 1Q12) won’t recur, we anticipate a stronger core number. Gas sales should reach a record high—management guided that gas sales hit 4,500mmcfd in March (so would have been even higher in April). Also, GSP production will rise (1Q12 was the trough for the year), due to fewer scheduled shutdowns.   
…a further impairment loss is unlikely: The dispute between the Egyptian Natural Gas Holding Company (EGAS) and EMG (the offshore Egyptian pipeline operator  in which PTT has a 25% stake) culminated with EGAS terminating its gas sales agreement with EMG. But a further impairment on PTT’s investment in EMG is not currently a matter of concern. Under the worst-case scenario, the write-off wouldn’t be booked until 3Q12 at the earliest. Egypt is due to hold a presidential election on May 24; its new govt will have to act on the dispute (EMG was established by the Egyptian govt). 
NGV price de-control—scope for earnings upside: As the Thai govt recently approved an upward revision to taxi fares (effective in June), we believe that the administration will go ahead with the NGV price regime it approved last year. As such, PTT should start to benefit from an NGV price increase this month onward. Based on our stress test, its loss on NGV sales will diminish by Bt240m in 2Q12 from a record Bt3.6bn in 1Q12. This year’s loss on NGV sales should diminish by about Bt2.8bn (to around Bt7.2bn) and the FY13 loss by Bt7.6bn (to Bt2.4bn). Note that the loss was about Bt10bn in FY11.