Thai Oil

Thai Oil Plc (TOP)

Net profit projected at B8.56bn in 3Q12 due to stock gain
TOP’s 3Q12 operating result is projected to flip back to net profit of B8.56bn from net loss of B6.9bn in 2Q12 due to the following reasons. 1) The recognition of stock gain and reversal of lower-of-cost-or-market inventory valuation (reverse LCM) stand at B4.15bn (around 50% of 3Q12 profit forecast) from the oil price at end-3Q12 that has increased from 2Q12 by US$15/bbl (based on Dubai). 2) The recognition of FX gain stands at B594m, from Baht that has appreciated by B0.99/US$. 3) The company would exercise the right for BOI tax privilege by around B400m from the investment in 3Q12 (CAPEX) for the pollution control project. For the rest part of profit around B3.6bn (considered 42% of 3Q12 profit forecast), it comes from an increase of profit from the
refinery business due to market GRM that has ascended to US$7.8/bbl from US$4.6/bbl in 2Q12. On the other hand, the profit from aromatics business (TPX) and lube oil business (TLB) in 3Q12 is projected to drop from 2Q12 by approx 25%. Although the average spread of aromatics products in 3Q12 is projected increase slightly by 4% as aromatics product trading is normally a purchase from the contract price which is normally laggard from the spot price by 1 month, TOP’s recognition of
revenue from aromatics business would be based on the price in June 2012 which is the year’s bottom. Overall, the company’s 9M12 net profit is projected to stand at B8.89bn or a decrease of 31.6% from the same period of prior year, considered 100% of our FY2012 forecast.

Q4 2012 norm profit projected to grow continually… likely to revise up FY2012 forecast
We are likely to revise up our 2012 net profit forecast after an official announcement of Q3 2012 earnings result to reflect the stock gain and other extraordinary items such as FX gain and BOI benefits in Q3 2012 (not included in our forecast). Q4 2012 norm profit is projected to grow
continuously especially from the refinery business (70% of TOP’s total profit) that is approaching the high season in late of Q4 2012 which is the winter for many continents. Accordingly, the need for the middle distillated oils (diesel and jet fuel) would rise, boosting GRM to stand above US$10/bbl (based on Singapore’s market) and hit the record high once again in 2013’s first quarter and continuously in the second quarter. For the aromatics business, the profit is projected to increase from the product spread in the past 1 month that has given a strong signal of recovery. Moreover, the late of year is the season for production especially polyester clothes for winter, likely to urge the manufacturers to restock raw materials. In addition, there’s a positive factor from the hope that China would launch the economic-stimulus measure in the near future, which would raise the demand of Px after the new PTA plant has gradually operated with more utilization rate.

Refinery outstanding in 3-5 months ahead, boosting share price to outperform market
Fair value, using DCF, at end-2012 and 2013 is B70.16 and B84.21 respectively. We reiterate our recommendation of “BUY” due to the tendency of refining margin that’s still in uptrend in the next 3-5 months and the hope that the aromatics spread would rebound outstandingly during the rest of the year.