PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

Stock gain and increasing sales volume to boost 3Q12’s profit significantly qoq

We estimate net profit in 3Q12 at B11.8bn, growing significantly from the net profit of only B851m in 2Q12. The increase in 3Q12’s net profit has resulted from stock gain of oil and aromatics and a reversal of oil inventory valuation,using lower of cost or market (LCM), at around B3.1bn in total comparing the loss of B6.2bn from the 2 items in 2Q12. Moreover, the company would book
a FX gain of around B850m from Baht appreciation. In addition, norm profit is projected to increase from the previous quarter as well due to the following contributions. 1) Market GRM is anticipated to hike to US$6/bbl from US$4.3/bbl in the prior quarter. 2) Spread of aromatics has widened by
21%qoq to stand at US$230/ton (market to feed margin), while the sales volume has stabilized. 3) Olefins sales volume has increased, especially for LLDPE and LDPE, respectively by 30%qoq and 105%qoq, while average spread of the products has contracted slightly. However, in 3Q12 there has been pressure from the adjustment of pricing formula for petrochemical raw material purchase between PTTCG and PTT that has made PTTGC’s cost of raw material increase by US$40/ton (effective since 1 August onward). Overall, net profit in 9M12 is estimated at B22.4bn, dropping 13.3% from the same period last year and accounting for 92.5% of our FY2012’s earnings forecast.

Likely to revise up 2012’s forecast to reflect extraordinary items in 3Q12
We are likely to revise up our net profit forecast for FY2012 after the company announces its earnings result in 3Q12 in order to reflect extraordinary items in the quarter, which are the stock gain and FX gain that we have not included in our forecast. We project norm profit in 4Q12 to grow
continuously from increasing production utilization rate of the olefins petrochemical business, particularly HDPE plastic resin after a 1-month maintenance shutdown in 2Q12. At the same time, spread of both olefins and aromatics would be able to stabilize close to that of 3Q12. Additionally, for the refinery business, GRM is anticipated to stand at US$6/bbl close to 3Q12’s from rising demand for gasoline within the region against contracting supply from planned and unplanned shutdown of many refineries in Asia, America, and Europe to prepare for a full operation during winter. Moreover, the end of the quarter would be winter, in which demands for middle distillate, both jet fuel and diesel, would rally again.

Hold. Await clear recovery sign of petrochemical business
We derive 2012’s fair value, DCF, at B65.45/share. In spite of the abovementioned forecast increase, there will not be an effect on the fair value because it was only an adjustment of extraordinary items in 3Q12. We reiterate to hold while awaiting a sign of recovery of the petrochemical business under the hope toward the world economic rebound, especially of
China, in the near future.