PTT

PTT Plc
Although 2Q12 earnings were pummelled by write-offs from Montara and EMG and large inventory losses, core earnings were in line with our forecast, thanks to solid core gas earnings. PTT’s earnings should rebound sharply due to stronger operations across the board. 1H12 core net profit was 40% of our full-year forecast. We consider this to be in line as we expect earnings to rebound sharply on the back of inventory gains, strong core gas earnings and improved contributions from PTTEP and all downstream associates. Maintain Outperform and SOP-based target price of THB453. 
Big blow from one-offs
Core earnings plunged 50% yoy and 55% qoq to THB15.9bn, mainly due to large inventory losses. The earnings were 7% below consensus but in line with our forecast. Net profit, however,dropped to THB8.5bn, eroded by 1) PTTEP’s THB3.5bn write-off for Montara due to higher costs arising
from delays despite receiving THB990m in insurance for damage caused by fire, 2) PTT’s THB4bn
write-off for the EMG gas pipeline due to suspension of operations as a result of gas supply shortage, 3) associate earnings plummeting 142% yoy to net loss of THB4.4bn due to large inventory losses and a poorer gross refining margin (GRM) and petrochemical spreads, 4) FX loss of THB2.3bn, 5) higher income tax expense due to PTTEP’s tax adjustment, and 6) THB4.4bn in NGV losses given the higher gas cost and NGV price cap.
A rebound on the horizon
With most of the negative factors expected to reverse or improve, we believe PTT’s earnings will rebound to THB35bn-40bn in 3Q12. The keys are rising oil prices, which will drive inventory gains, an improved GRM and petrochemical spreads and higher volumes.
Still attractive
Driven by strong earnings growth,PTT’s valuations should improve as oil prices rise, narrowing its discount to the peer average.