PTT Global Chemical

PTT Global Chemical (PTTGC)

- Focus on boosting EBITDA rather than sales
There was nothing new from the analyst meeting yesterday; the
management has still been moving forward with the strategies of operational
excellence, marketing excellence, and synergy excellence in order to increase
PTTGC’s profit base. In 1Q13, EBITDA grew by US$50.76m, comparing to
FY2013’s target growth of US$117m, and the company has aimed to boost
EBITDA growth to 30% by 2017. These strategies have suited very well to
the current situation in which overall petrochemical price and spread are only
stabilizing as a result of the world economic slowdown that is hindering
global demands for upstream and downstream petrochemical products.
Moreover, PTTGC is marching forward to increase the profit base from new
investment projects, especially overseas. By late 2013, the company will
reach an agreement on a joint venture with Indonesia’s state-owned energy
company Pertamina in the development of a petrochemical facility in
Indonesia. The investment budget has been set at US$4bn and preliminary
shareholding ratio is Pertamina 51% and PTTGC 49%. For the joint ventures
with Petronas and Sinochem, the projects are now under a feasibility study
which would reach a conclusion in the next 2-3 years. With these strategies,
we project to see steady growth in the long run from strong investment base
and good risk distribution (with all upstream to downstream products) to
become a leader in regional refinery and petrochemical business.
- 2Q13’s profit to weaken from refinery and petrochemical
plants shutdown
We estimate the earnings in 2Q13 to weaken from 1Q13 since the production
and sales volume would decrease as a result of the maintenance shutdown of
refineries and petrochemical plants. Shutdown period for refineries with total
production capacity of 210,000 bbls/day is planned at 2 months (May-June),
while for petrochemical plants, unit l4-1 with ethylene production capacity of
515,000 tons/year would be shutdown for maintenance for 40 days during
4Q13 or July-August and other units which are HDPE, LLDPE, and LDPE
would be shut down for 15, 25, and 15 days respectively. In addition, if the
petrochemical price and spread, gross refinery margin, and crude oil price
continue declining from 1Q13 during the rest of 2Q13, overall profit of the
refinery and petrochemical sector would fall significantly.
- Hold. Negative factors still depressing share price in short
term
We reiterate our recommendation of HOLD. 2013’s fair value, using DCF, is
B78.10. However, the share price has already undergone correction to reflect
negative factors of petrochemical industry and 2Q13’s earnings outlook is
still weak, so the share price would still be pressured in the short term