PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

Capital increase with 650 million new shares as expected…ready to expand investment as planned
Due to the meeting of PTTEP’s Board of Directors, the issuance of 650,000,000 new ordinary shares (each share valued at B1) for capital raising had been approved for the sake of expanding investment to other regions globally in order to search for the oil and natural gas resources,
strengthen the financial structure of the company and enhance financial liquidity. PTTEP has planned to allocate 650,000,000 shares to 3 groups as follows. 1) No more than 403,395,000 shares will be offered to PTT in order to maintain the shareholding at around 65.29% of the total issued shares after this time of capital raising (before exercising for green-shoe option),
which is the same portion that PTT has hold previously before this round of capital raising. 2) No more than 214,443,000 shares will be offered to general public. The executive has revealed at a conference call on 21 July 2012 that this part of shares aims for the original holders (PTT excluded) although it couldn’t make clear whether it is a right offering since it would be against the law and the international regulation. Accordingly, only 6,250,000 shares (or around B1bn) from 214,433,000 shares will be offered to general public. 3) No more than 32,162,000 shares will be offered to the overallotment agent (greenshoe) for the purpose of share price stabilisation.
Due to mentioned rights, the overallotment agent can purchase additional shares within 30 days from the day after all shares has been sold out.

Dilution effects on 2012 and 2013 EPS is 22% on average
The abovementioned capital raising has occurred as we have projected and
constantly presented earlier. From our estimation, dilution effect is projected
to impact ESP in 2012 and 2013 by average 22%, under an assumption that
2012 income and profit remain the same, bringing about our negative
perspective toward this round of investment. Although this particular issue is
for the sake of preparation for expanding investment in big exploration and
production projects, all projects PTTEP has planned to invest in will take
around 3-5 years before they can generate profit, such as Cove Energy
(PTTEP is currently in the process of tender offering and it has a high
opportunity to win after Shell had withdrawn from the acquisition). On the
other hand, the company should invest in the assets that generate income
and profit back instantly after capital raising which is not likely to happen
since we’re convinced that money from the capital raise will be mainly used
to prepare for investing in Cove Energy. The return from investing with
money from capital raise is projected to benefit PTTEP in a long term of 3-5
years onward.

New 2012 FV is B167.51/share… downgrade to “HOLD” in short term
We derive the fair value, using DCF, at end-2012 at B167.51/share, implying
only 1% upside. While comparing with 2013 fair value at B180/share, the
current market price has 9% upside, reflecting the return of investment that
might not be so appealing. In addition, the proportion of PTTEP’s
shareholding (except PTT) might partially decrease if there’s no full
allocation. Accordingly, we downgrade our recommendation from “BUY” to
“HOLD” in a short term.