PTT

PTT Plc

Investment thesis: Forecast weak Q2 2012 earnings and a street projection downgrade may make for a short-term hiccup in stock sentiment. In order to reflect our earnings cut, we have trimmed our DCF target price to Bt370 (from Bt375). Any share price weakness would present a buying opportunity. PTT’s forward bottom-line profile remains promising—we expect a strong Q3 2012 bounce. Extra losses (booked in Q2 2012) won’t recur, while operational numbers will rise. The resumption of NGV price rises by mid Aug would prompt a further re-rating, it would boost confidence in the govt’s execution of its energy price liberalization plan.  
Q2 2012 expected to trough: We are now more subdued about Q2 2012; we anticipate a Q2 2012 profit of Bt8,560m, down by 77% QoQ and 74% YoY. The expected weakness was caused by FX and stock losses totaling Bt4.6bn, a Bt4bn write-off on EMG and poor results by all subsidiaries. PTT’s posted operational number will, however, remain flattish QoQ, despite a deeper loss on NGV sales and lower chemical product prices. Gas sales and GSP production reported record highs of 4,507mmcfd and 1.59mt, respectively, up from 4,285mmcfd and 1.45mt Q1 2012. 
NGV loss to ease and asset impairment to prevail? PTT guides that it will post a record loss on NGV sales of Bt4.4bn for Q2 212 versus Bt3.5bn in Q1 2012, due to the govt’s 3-month moratorium on price rises and because the price charged to taxis was capped at Bt8.5/kg (against a retail price of Bt10.5/kg). We expect the NGV price to resume increasing in mid Aug, when the moratorium ends—we calculate that every Bt0.5 increase would reduce the loss by Bt80m/month.
The further EMG write-off was due to the fact that PTT and other shareholders in EMG agreed to terminate gas sales contracts with EGAS; Egypt doesn’t yet have an effectively functioning govt. Under the worst-case scenario, PTT would write off the remaining book value of Bt3.5bn. The firm earlier said that the new administration will have to act on this dispute, as EMG was set up by the Egyptian govt.    
FY12 forecast trimmed, but strong bounce in Q3 2012: As we now assume the possibility of PTT writing off its entire investment in EMG and have fine-tuned for our recent earnings projection cuts for all its subsidiaries, we have downsized our FY12 profit forecast by 14% to Bt98,879m.
While we expect another write-off on EMG of Bt3.5bn in Q3 2012, we remain optimistic about the bottom-line outlook. Stock loss realization (by PTT and all subsidiaries) of Bt12bn won’t recur—while MS’s forecast stable oil price environment implies that about half the stock losses will switch to gains. PTT’s operational performance is also set to improve—strong gas sales should prevail. PTT guides that gas sales hit 4,600mmcfd in June (and sales should remain high through Q3 2012). Furthermore, an expected chemical product price recovery would boost the performances of GSPs.