PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

LDPE factory announces unplanned shutdown, production paused 3.5 months
PTTGC has announced an unplanned shutdown of LDPE (low density polyethylene)
factory with 300,000 ton/year production capacity, after a cylinder in
booster / primary compressor was found broken during a planned shutdown for
machine cleaning on 7-12 July 2013. Maintenance is projected to take 3.5
months. However, the company has prepared these plans to lessen the effects of
this problem: 1) Effect to LDPE consumers - Initially, the company will provide
28-day LDPE stock to consumers, and the company has planned to import some
additional LDPE to provide to remaining consumers. 2) Effect to remaining
ethylene (initially intended to be fed to LDPE factory) The company has planned
to boost production of other plastic manufacturing e.g. HDPE and LLDPE in order
to use ethylene intended for LDPE production, and the rest will be sold to oversea
markets. However, damage caused by ethylene oversupply would not be severe,
as olefins I4-1 factory that produces ethylene at the capacity of 515,000
ton/month has scheduled planned shutdown on 1 August - 13 2013. Machinery
breakdown and business interruption insurance policy has covered PTTGC. The
company and the insurance company have been evaluating the damage.
- 2013 earnings forecast revised down, reflecting LDPE factory shutdown
We have revised FY2013 net profit forecast down by 3.6% to reflect the
unplanned shutdown of LDPE factory. Under our assumption, income and profit
from LDPE factory would fall from former forecast for 2 months, as the company
would be able to sell remaining LDPE in stock to consumers for 1 month.
However, 3Q13 profit from LDPE is likely to drop 12.6% from the former forecast.
3Q13 norm profit expected to rise from boosting GRM and resumption of the
refinery at 100% rate after planned shutdown in 2Q13 would be negated by the
LDPE factory's unplanned shutdown, likely to make 3Q13 profit stay unchanged,
not rising significantly. Under present assumption, we have not included
compensation from property damage insurance, which the manager projected at
B15-20m, as well as compensation from business interruption insurance for 1.5
months that is beyond the deal.
- Short term stock price may be pressed, invest when price falls
Under new forecast, DCF-based FV at end-2013 is B77.92 (falling from
B78.10/share). We project PTTGC to be pressed in short term by the negative
factor, so we recommend investing when the price falls.