PTT Exploration & Production Plc

PTT Exploration & Production Plc (PTTEP)
- Net profit could slide QoQ but will still be better YoY
- More investment in operating assets to be concluded in six months
Q2 2013F profit to fall 46% QoQ. A talk with management indicated 2Q13F net profit could be lower than previously expected. Based on latest guidance, we expect net profit of ~Bt11bn, down 46% QoQ but up 43% YoY. While the operating performance should be in line with our previous forecast, we found that losses from non-recurring items – FX loss and higher deferred tax liabilities (non-cash) - could be above earlier estimates. The profit projected for 1H13F accounts for 46% of our full-year forecast.  
Higher sales volume offset by lower ASP. Operationally, we estimate a 3.6% QoQ fall in average selling price to US$64.6/BOE. This will be partly offset by higher sales volume of 294kBOED (+1% QoQ) since MTJDA returned to normal production after its planned maintenance shutdown during 4Q12-1Q13. There was a small shutdown in 2Q13 at Bongkot South and Arthit fields, but the production loss from these two fields was marginal.
Montara’s first shipment expected in Aug. Management confirmed that Montara’s first oil shipment is expected in August 2013 after startup in June. The production rate at this field will be gradually ramped up from the current 10kbd to reach its peak production in late 2013 at 30kbd, which can be sustained for only a few days. A stable production rate is targeted at 22-25kbd. PTTEP targets the average production rate for 2013 at 10kbd+ which will be raised to 20kbd+ in 2014F. Management also reiterated that PTTEP will not have to set aside additional impairment for the project, but the profit contribution from this project will initially be miniscule due to high depreciation of US$80/bbl. The key contribution will be cash, as its EBITDA margin is a strong >70%.
Upcoming investment in Hess assets in Thailand and Indonesia. Management is interested in Hess Corporation’s holdings in producing assets in Thailand and Indonesia after Hess announced its intention to exit these two markets. The key assets in Thailand are a 15% interest in Pailin and 35% in Sinphuhorm. PTTEP has first rights of refusal for these two fields with a 45% and 20% interest respectively. PTTEP is also interested in Hess’ assets in Indonesia, i.e. 23% interest in Natuna Sea Block A and 75% in Pangkah. Management expects the final decision to be made within the next six months. Its cash on hand and room for more debt of US$3.5bn is seen as adequate for more investment.       
BUY maintained on undemanding valuation. We see PTTEP’s valuation as still compelling at 9.5x 2013’s P/E vs. 13x for regional peers and dividend yield of above 4% for the next three years. Higher oil price could be a short-term share price catalyst while concerns about its operations have eased substantially compared with three months ago. We maintain BUY with end-2013 TP of Bt200.