PTT

PTT Plc

Invest in upstream-petroleum business through PTTEP to urge long-term growth

After the new shares for capital raising have been issued by PTTEP, PTT who
currently possesses a major part of shareholding at 65.29% in PTTEP has to
be financially prepared to increase its investment in order to maintain the
shareholding at the same level at 65.29% of PTTEP’s total paid-up share
capital. In doing this, PTT has to purchase no more than 403.395 million new
shares after this round of newly-issued share offering (before the new shares
are allocated to the overallotment agent). If the selling price of the newlyissued
shares is B160 each, PTT’s investment for this round will stand at
approx B65bn (based on our preliminary assumption because the price will be
assigned after the process of book building). The capital increase aims to
expand investment in the petroleum business to other regions worldwide in
order to search for oil and natural gas resources, strengthen the company’s
financial structure and enhance financial liquidity.

No negative effects toward PTT as already included in investment plan

PTT’s additional investment for maintaining shareholding in PTTEP hasn’t
financially affected the company because it is already included as a part of
the company’s capital expenditure (CAPEX) plan to make PTTEP a spearhead
for investment in an upstream business - petroleum exploration and
production - locally and overseas by 41% of 2012-2016 expenditure budget
of B900bn in total (another 41% will be an investment in a gas business
expansion including gas pipeline, LNG terminal, NGV station, and other
related businesses while the rest 16% will be an investment in a capacity
expansion for petrochemical business through PTTGC to focus more on
specialty products in order to create value added for the business). However,
due to this round of investment, PTT might have to borrow money from
financial institutions in the near future which will make D/E ratio increase to
0.55x from the current 0.4x, still lower than the sector’s average at 1x.
Nevertheless, in the next 3-5 years, additional income and profit from
investing in PTTEP will help decrease D/E ratio in a long term.

New 2012 fair value is B390.3/share. Recommend gradual “ACCUMULATE”

According to the fair value of PTTEP that has been revised down to
B167.51/share (from B200/share), we derive PTT’s fair value, based on DCF
and sum of parts, at end-2012 at B390.3/share (from B411/share). At
present, the market has 20% upside from the new fair value. We reiterate
“BUY” due to the potential growth in a long term. In a short term, PTT is
projected to benefit from adjusting of formula for calculation of profit sharing
between PTT and PTTGC that is expected to be concluded in 1-2 months
ahead. Every 5% increase of profit sharing will urge PTT’s profit to rise by
1.2% from 2012 net profit forecast (half year) and 2.2% from 2013 net profit
forecast.