PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

2Q12’s profit estimated at B850m, slightly beating projection
We estimate 2Q12’s net profit of PTTGC at B850m, plunging 91.4%qoq but
still better than our previous projection (in early June) due to following
factors. Prices and spreads of olefins products have risen in the last month of
the quarter (June), while majority of petrochemical product sales has already
had a forward contract and the contracted price in 2Q12 has dropped only
slightly compared with the spot price (see the table on the next page).
Consequently, earnings in 2Q12 would be able to revert to a slight net profit.
However, a significant decline of profit in 2Q12 from the prior quarter has
resulted from loss from stock of oil and aromatics and oil inventory valuation,
using lower of cost or market (LCM), at around B6bn in total comparing to a
stock gain of B3bn in 1Q12. However, norm profit would remain stable from
the previous quarter due to a support from increasing production utilization
rate (in 1Q12 there was a maintenance shutdown) which could offset an
effect from a decline of spread of aromatics product while spread of olefins
product could stabilize. Meanwhile, market GRM in 2Q12 is projected to stay
at US$6/bbl due to benefit from an annual maintenance shutdown of many
refineries in the region. Overall, we project net profit of PTTGC in 1H12 at
B10.7bn, dropping 46% from the same period last year and comprising
45.8% of our previous forecast for FY2012.

Up 2012’s forecast to reflect likely better-than-expected earnings in 2Q12
We revise up our earnings forecast for FY2012 as shown in the table in order
to reflect likely better-than-expected earnings in 2Q12. We still have positive
perspective that earnings in 2H12 would revert to normal, evidenced by
prices and spreads of petrochemical products which are now recovering after
passing a year’s low in 2Q12 because operators who suffered from the
economic downturn and did not stock new raw material but used the old
stocks instead have to start restocking again in 3Q12. Furthermore, 3Q12 is
a high season for production to prepare for the year-end festive season, so it
would help recover the petrochemical business. Similarly, market GRM is
projected to stabilize at US$5/bbl from regional demands which are
anticipated to rise again following the economic recovery and an approach of
Ramadan in Indonesia in which demand for gasoline usually rises. Moreover,
August-October of every year is the period when many refineries in Asia,
America, and Europe undertake a maintenance shutdown to prepare for an
operation in the coming winter (in late 4Q12), so some of the supply would
disappear from the market, thus pushing up price of finished oil.

New 2012’s fair value is B72.84/share. Buy on weakness
Under the new forecast, fair value at end-2012, using DCF, is B7284/share
(from B72.60/share). We maintain our recommendation to buy but on
weakness in order to reduce effect from the market’s correction. Moreover, in
the short term there is a pressuring factor from change in a calculation profit
sharing (PTT is a supplier of raw material, ethane gas, from its gas separation
plant to PTTGC’s ethane cracker for production) between PTT and PTTGC to
be more beneficial to PTT. According to our primarily estimation, at every 5%
increase in profit sharing to PTT, PTTGC’s profit decreases by B2.5bn a year
or 5.3% from FY2012’s profit forecast (calculated for a half year) and 9.1%
from FY2013’s profit forecast.