PTT Global Chemical

PTT Global Chemical (PTTGC)

Revise pricing structure for natural gas; cost increases by US$40/ton
The company’s board of directors has financially approved an adjustment in the pricing formula between PTTGC and PTT (natural gas). Due to a rise in global crude oil price and cost of natural gas which is used in a production of raw material for petrochemical products, the current pricing formula no longer reflects equal favors for both sides. With the new pricing formula based on the crude oil price of US$70-130/bbl, petrochemical raw material price would increase by
US$40/metric ton or around 8% from currently. The new formula will be effective since 1 August 2012. However, in order to maintain its competitiveness in the long run, PTTGC will join with PTT to create value added to the downstream business and seek natural gas for using as raw material for PTTGC’s investment expansion project (de-bottlenecking) in order to maintain its position as a leader in PTT’s petrochemical business.

Cut forecast. Price restructuring affects PTTGC profit in 2012-2013 by 5.4% and 10.5%

We cut FY2012-2013’s profit forecast to reflect the abovementioned pricing formula adjustment which will make cost of petrochemical raw material from natural gas increase by US$40/ton from the current level of US$300/ton on average. The increase of US$40/ton in price of natural
gas, a raw material, will be imposed to every product PTTCH buys from PTT’s gas separation, including ethane, propane, LPG, and NGL. Due to the afore-mentioned effect, net profit of PTTGC in 2012 (calculated since 1 August to 31 December 2012) and 2013 would decrease respectively
by5.4% and 10.5% from the previous forecast. At the same time, PTT would benefit from the pricing formula adjustment as its revenue from gas sale to PTTGC would increase by US$40/ton, reflecting rising cost of natural gas provided by PTT. Consequently, we are now revising up our
earnings forecast for PTT. Preliminarily, we project the factor would make PTT’s net profit in 2012 (calculated since 1 August to 31 December 2012) and 2013 increase respectively by 1.1% and 2.3% from the current forecast.

New 2012’s fair value is B65.45/share, implying 11.5% upside. Buy

Under the new forecast, PTTGC’s fair value at end-2012, using DCF, is B65.45/share (from B72.60/share). We maintain our recommendation to buy as the share price decrease in the past 1-2 months likely has already reflected the abovementioned issue. Moreover, the current share
price still has 11.4% upside from the new fair value. For PTT, we would report our forecast and fair value revision that reflects the benefit after an analyst meeting.