Thai Oil

Thai Oil Plc (TOP)
2Q13F could turn to a loss. We estimate TOP to report a loss of Bt1.3bn in 2Q13F compared with net profit of Bt4.4bn in 1Q13 due to the unfavorable oil market in the quarter and FX loss on its US$ loans. Its GRM is expected to slide to US$3.6/bbl in 2Q13F from US$6.6/bbl in 1Q13 mainly due to lower crack spread on gasoline after the abnormal high in 1Q13. This is in line with the adjusted Singapore GRM, which fell to US$3.5/bbl in 2Q13F from US$5.4/bbl in 1Q13. We also estimate that the company had to book a stock loss of Bt1.6bn due to lower oil price during the quarter.
High crude run rate sustained despite shutdown. TOP kept its crude run rate at 102%, up slightly from 101% in 1Q13, despite the 15-day maintenance shutdown for crude distillation unit 2 (CDU-2), which has refining capacity of 50kbd (18% of total capacity). The company was able to ramp up crude run rate in June to offset the production loss in May from the shutdown.
Narrower PX spread also pulled earnings down. The aromatics business was also hurt by a narrower margin for PX and ULG95 to US$435/from US$534/t in 1Q13 t. The impact on TOP's earnings could be less due to the one-month contract price. The lube base oil business improved slightly QoQ on higher utilization rate and wider product spread.
Major turnaround for CDU-3 planned for 2014F. The largest crude distillation unit with capacity of 165kbd (60% of total capacity) is due for its major turnaround in 2014. The company is planning to incorporate the refinery upgrading into this maintenance shutdown, making this a longer closure than the usual 30 days. We estimate each 1% decline in crude run rate impacts our 2014F net profit forecast by at least 2%.
Marginal earnings contribution from LAB project. The company recently announced a joint investment with Mitsui in a 100ktpa Linear Alkyl Benzene (LAB) project valued at US$400mn. With TOP’s interest of 75% and project D/E of 1.7x, it will have to inject equity of US$112.5mn into the new joint venture. The project is to commence operations in 2Q15. Management reaffirmed the equity IRR of the project could be higher than its policy rate of 15%. We estimate the full-year contribution of this project no more than 5-6% of TOP’s earnings.       
Still a BUY despite earnings hiccup in 2Q13F. We maintain our BUY rating on TOP since it is still trading well below its average PBV of 1.7x. Its 2013 P/E of 10.8x is also below regional peers’ 12x. We believe that with its strong cash position, it will be able to deliver dividend yield of 4-5.1% for the next three years. We maintain our positive view on the outlook of the oil refining business for the next two years given the balanced demand/supply of oil refining capacity in the region.