PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

Q1 2013’s net profit to rise 23.1%QoQ, thanking mainly to petrochemical business
PTTGC’s 1Q13 net profit is estimated at B12.79bn, increasing by 23.1% QoQ due
mainly to petrochemical business as follows. 1) Olefins business: In 1Q13, the
company has resumed full operation of every product, so the utilization rate has
increased by 10.5% QoQ to 109%. For the product prices and spread, they have
also risen by 5.3% QoQ and 13.3% QoQ respectively. 2) Aromatics business: The
spread of paraxylene products is projected to widen continuously from 4Q12 due
to 1-month forward contract, benefiting from good price during late-2012. The
spread of Px-condensate in 1Q13 is projected to increase by 4.06% QoQ to
US$666/ton. For the spread of Bz-condensate, it still has stabilized at a high level
of US$435/ton. Apart from that, the utilization rate of BTX plant has increased
slightly to 92% from 91% in the previous quarter. For the refinery business, 1Q13
profit tends to only stabilize from the prior quarter. Although the market GRM has
risen along with the widened spread of finished oil products, sales volume in 1Q13
has declined because some of the oil has been kept in oil stock inventory, which
increased to 7.2 million bbls at end-1Q13 from 5.7 million bbls at end-4Q12.
Other than that, the company is projected to recognize stock loss and LCM loss of
around US$1/bbl, but this would be partially compensated by profit from hedging
of around US$0.30/bbl. In addition, there would be recognition of FX gain by
B1.69bn due to Baht’s 4.2% appreciation. Overall, PTTGC’s 1Q13 net profit is
considered 37.4% of our FY2013 forecast.
- Q2 2013’s profit to weaken due to maintenance shut down of refinery and petrochemical plants
In 2Q13, PTTGC’s profit is projected to fall significantly from 1Q13 because of
production and sales volume that would decline as a result of maintenance
shutdown plan for both refinery and petrochemical plants. Shutdown period for
refineries with total production capacity of 210,000 bbls/day is planned at 2
months (May-June). For petrochemical plants, unit l4-1 with ethylene production
capacity of 515,000 tons/year would be shutdown for maintenance for 40 days
during July-August; for other units which are HDPE, LLDPE, and LDPE, their
maintenance shutdown periods would be 15, 25, and 15 days respectively. In
terms of petrochemical product prices, they are projected to fluctuate with the
economy, unlikely to recover significantly in a short term. With oil stock inventory
increasing to 7.2 million bbls mentioned above, PTTGC would have to recognize
high stock loss if Dubai crude oil price slips below US$107/bbl (closing price at
end-1Q13). At present, Dubai crude oil price is US$98/bbl.
- Pressure still lingers in short term… Downgrade to “HOLD”
We downgrade our recommendation from “BUY” to “HOLD” to reflect the overall
look of petrochemical industry’s lower-than-projected recovery. We revise down
long-term growth rate to only 2% from 3.5%. Accordingly, fair value at end-2013,
using DCF, is B78.10 (from B92). We’re convinced that the share price has
already survived correction, reflecting negative factors of petrochemical industry’s
outlook at some level; however, as long as petrochemical product prices are still
fluctuating negatively and company’s 2Q13 operating result still tends to weaken,
the share price would still be pressured in a short term.