PTT Global Chemical
Short-term hiccup; long-term growth prospects intact
PTT Global Chemical Plc (PTTGC)
Investment thesis
The key messages from the analyst meeting reaffirmed our optimistic view of PTTGC’s mid- to long-term growth prospects. However, pending concerns over China’s economy and the unclear scale of claims against the recent oil spill are likely to weigh on sentiment toward the firm in the near-term. We think the stock will regain momentum later this year when there should be incipient signs of a global economic recovery and additional information is made available with regard to expenses related to the oil spill.
Fundamentally, PTTGC is expected to post strong HoH core earnings growth for 2H13, driven by sustained good chemical spreads (supported by high season and better demand-supply dynamics) and volume growth. The stock currently trades at an FY13 PER of 10.2x, a deep discount to the regional mean of 22.6x.
Olefins spreads to be sustained strong in 2H13; PX spread to soften
Improved demand, limited supply additions and better market discipline among sellers should lend support to the HDPE spread in 2H13. The average HDPE spread over Naphtha is expected to remain good at about US$550/t in 2H13, comparable to the 1H13 level. In contrast, the PX spread is likely to soften from $600/t in 1H13 to $500-550/t in 2H13, due to substantial new capacity additions. A global economic recovery, particularly stronger Chinese GDP growth, would build market confidence and trigger stronger chemical demand and a price recovery.
Excellence programs & synergy projects to drive mid-term growth
PTTGC’s Excellence programs and synergy projects continue to progress. The incremental EBITDA from these projects (excluding PTTPE’s expansion) are expected to reach US$417m in FY17 from $177m in FY13—a 24% CAGR, FY13-17. Furthermore, PTTGC is currently in the preliminary stages of debottlenecking projects for the PTTPE cracker and polymer facilities. We preliminarily estimate incremental EBITDA from the debottlenecking projects in the range of $110-140m per year.
Oil spill has been dealt with
The company has dispersed the oil spill. However, it’s not yet clear what the total cost will be (to be booked to the 3Q13 accounts). PTTGC has insurance coverage for marine cargo, third party liability, business interruption (BI) and property damage. But it won't be able to claim for BI or property damage, as its refinery has been running at full capacity.
