PTT Exploration & Production
Lower target, as recap will fall slightly short of target
PTT Exploration & Production Plc (PTTEP)
Investment thesis
While PTTEP’s final PO price of Bt142/share missed the firm’s earlier expectation, we don’t think it’s a significant matter. The new funds would be only 6% short of its budget. More importantly, all eyes will turn to the success of the recapitalization, which is due to be completed by Dec 7. The share price surge following the PO price announcement constituted a positive surprise. If the price can be sustained, the new shares should be fully subscribed, which would boost sentiment toward the stock, in our view. Because of the firm’s slightly downsized recapitalization, we have trimmed our DCF-derived YE13 target price to Bt186 from Bt188. PTTEP remains our preferred pick within Thai Energy space.
Final price in upper range …
Last Friday, PTTEP finalized its preferential PO price at Bt142/share. The price is near the high end of the book-building range of Bt135-145/share. The subscription ratio approximates 5.1 old shares for 1 new share, based on the firm offering all 650m newly-issued shares into the preferential public offering process. If all the shares are fully subscribed, PTTEP will raise Bt92.3bn in cash—which would be slightly short of its earlier target of Bt98bn.
...despite missing target, success of recap does matter
While the capital-raising is likely to miss the firm’s earlier target, we don’t think it’s a substantive matter. PTTEP would be only Bt5.7bn (or 6%) short of its budget. The success of the recapitalization is much more important, in our view. The cash call will fund the firm’s second growth phase, as it targets achieving production of 600KBD by YE16. The result of the PO subscription will be known by Dec 7. If all the new shares are fully subscribed, then they can trade on the SET on Dec 14. On the other hand, any unsubscribed shares would be allocated through a PP. If that were to be the case, then the timing of know the result of the subscription would slip back to Dec 12 and the new shares would be listed on Dec 19.
Post-IPO net debt/equity ratio would still comfortably enable expansion
Assuming that all the new shares are fully subscribed at the foresaid PO price of Bt142, we anticipate that PTTEP’s post-recap net debt/equity ratio will dive to 0.18x from 0.67x at end-Sept 2012. With the new cash, the firm will pay down its British pound-denominated loans of £950m, which we believe would reduce FX volatility (the British pound was quite volatile against the dollar in 3Q12). The ratio will decline further to 0.15x by YE12 and to a negligible 0.06x by YE13. At that level, we calculate that the firm could add US$5bn in leverage without pushing its debt/equity ratio above 0.50x.
