PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

4Q12’s profit to weaken 26%qoq from stock loss and lower GRM
We estimate 4Q12’s net profit at B9.54bn, declining 26.1%qoq due mainly to
following reasons. 1) The company might book a stock loss of almost
US$1/bbl in this quarter, compared with a stock gain of US$3.74/bbl in 3Q12.
2) Market GRM is projected to drop to US$4.7/bbl from US$5.94/bbl in the
previous quarter. 3) Fx gain is anticipated to decrease by 46%qoq to stand at
only B400m from only slight appreciation of Baht. However, in 4Q12 the
company has a benefit from increasing petrochemical product spreads,
especially for aromatics products: Px - condensate which has widened
25%qoq to US$640/ton and Bz – condensate which has widened 76%qoq to
a historical high at US$439/ton. At the same time, spreads of olefins products
have gradually risen average by 5-10%qoq, as shown in the table. In
addition, petrochemical product sales in 4Q12 has only stayed flat from 3Q12
despite an increase of the utilization rate of the HDPE plant from 92% to 97%
because a 20-day maintenance shutdown of the olefins plant I4-1 made raw
material supplying for LDPE production decrease to only 71% from 113% in
the previous quarter. Overall, 2012’s net profit is estimated at B33bn,
increasing 10.4%yoy, higher than our previous forecast by 5%.

To rebound aggressively in 1Q13. Growth of 8.4% yoy foreseen in FY2013
We believe that the profit would grow notably again in 1Q13 from very high
product spreads, especially for aromatics, while olefins spreads will be
gradually increasing. At the same time, sales volume is projected to shift
from 4Q12 because there is not a maintenance shutdown in this quarter,
while the I4-1 plant has already resumed its normal operation. For overall
2013, we still have a positive outlook toward the petrochemical industry,
projecting to see a continuous recovery from rising demands alongside the
economic rebound. We project that olefins spreads would show the most
remarkable recovery in 2013 as the product prices and spreads have
increased only slightly in the past. For aromatics, products prices and spreads
have escalated significantly in 4Q12 because many refineries in the region
have undertaken unplanned shutdowns which resulted in temporary
disappearance of raw materials, both reformate and pygas, from the market.
However, as many refineries undertaking maintenance shutdowns in the end
of last year would resume their normal operations in 1H13, product prices
and spreads in 2H13 might weaken a little from currently. Nevertheless,
overall, average spreads in 2013 would remain high like in 2012. Norm profit
in FY2013 is projected to grow from FY2012 by 8.4%.

Buy. Petrochemical business signals recovery
2013’s fair value, DCF, is B92.43/share. We reiterate BUY. PER in 2013 of
PTTGC is low at only 9.9x, still lower than the regional average of 13-14x. On
the contrary, average ROE in the next 2 years is projected at 14-15%, higher
than the regional average at 10-11%