PTT Global Chemical

PTT Global Chemical Plc (PTTGC)
Weaker profit QoQ expected for 2Q13F, still a BUY. We believe anticipation of a
weak 2Q13F has been largely priced in by the 16% retreat in share price over 2Q13. We
still expect earnings recovery in 2H13F, as oil price and GRM have turned back up. Our
positive view on PTTGC’s earnings outlook and its future growth from new capacity is
intact. With attractive upside potential of 22% and dividend yield of 4.9-6% in the next
three years, we reaffirm our BUY rating with TP of Bt90/share from 1.6x PBV (+0.9SD)
on 2013 earnings. This implies P/E of 11x vs. current 13x for regional peers.
2Q13F: weaker QoQ but still in the black. We believe PTTGC will show a net profit of
Bt3.7bn in 2Q13F, down sharply from Bt12bn in 1Q13 due to unfavorable product
spread, especially at its oil refinery and aromatics businesses. Also affecting profit was
the planned maintenance shutdown of its refinery for 38 days and the LLDPE plant for
25 days. This slashed the utilization rate of the refinery to 63% in 2Q13 from 101% in
1Q13. Utilization rate of olefins crackers and aromatics plants fell to 84-93% in 2Q13F
from 92-97% in 1Q13. The PE and MEG plants operated at a high utilization rate of 96-
100%, with LLDPE the exception at only 72%, down from 113% due to the shutdown.
Inventory and FX loss also behind sharp fall in earnings. We estimate inventory
loss at Bt1.5bn on the average fall of US$7/bbl in oil price during the quarter. PTTGC
will also report an FX loss on its US$1.4bn debts of nearly Bt3bn in 2Q13F due to the
depreciation of the baht. PTTGC’s GRM will be hurt by an unfavorable crack spread for
middle distillate products (diesel and jet fuel) which narrowed by US$4/bbl from 1Q13.
We estimate market GRM will be slashed to only US$2/bbl in 2Q13F from US$4.4/bbl in
1Q13 since middle distillate products account for 60% of its product slate.
3Q13F profit could improve QoQ from wider GRM and stock gain. Although
several maintenance shutdowns will take place in 3Q13F, mainly the naphtha cracker
(I4-1) and one aromatics plant, we expect earnings to improve QoQ as the shutdown
will be shorter and product spread will be stronger, especially GRM. Product spread for
olefins and aromatics products is expected to be sustained at current levels, though
buying sentiment remains weak due to slower demand from China.
Joint investment with Pertamina could be finalized by end-13 as planned.
Among several investment plans, management reaffirmed that the joint investment
with Pertamina could materialize by the end of 2013 as planned. The location of the
plants should be finalized soon; it plans to initially produce commodity-grade products
before moving downstream to specialty products. The joint investment with Malaysia’s
Petronas has been delayed by another year to 2Q14.