PTT

PTT Plc
Focus turns to competitiveness from growth. We arranged a lunch meeting for
local institutional investors and PTT’s top management led by Dr Pailin
Chuchottaworn, President and Chief Executive Officer, and three other executives to
provide an update on its growth strategy and other current issues, such as the incident
at GSP#5 and PTTGC’s oil leak. We were told the company has moved away from its 12
years of seeking growth and for the next decade will concentrate on bettering
competitiveness and on the country’s energy security. We maintain our positive view
and reaffirm our BUY rating with TP of Bt400.
Highlights:
Management’s near-term strategy is to focus on reassessing its competitiveness
and efficiency to prepare for the next growth cycle. Key will be greater investment
in R&D to improve current technology and invent new technology. It also intends
to emphasize bio-based products despite the small contribution to earnings.
The government’s plan to increase LPG price for household use at Bt0.5/kg/month
for 12 months beginning Sep 1, 2013 is the big first step to realign energy use
locally. Although PTT will not benefit from this price adjustment, since the
authorities plan to put the money gained into the Oil Fund, if this move is
successful, the government may then adjust NGV price to reflect PTT’s cost.
Management confirms the lightening strike at GSP#5 will not affect LPG supply to
the household and transportation sectors or gas for power generation, despite
the supply loss of LPG of 75kt/month. It will replace the lost output by imports,
subsidized by the Oil Fund. Further, demand during the rainy season is normally
slow and more stringent measures to prevent LPG smuggling to neighboring
countries could help ensure sufficient LPG supply for the domestic market. The
plant may be able to resume operations at 50% of capacity in a month, after the
damaged Waste Heat Recovery Unit (WHRU) is disconnected from the main GSP
and then reach 70-80% operations within 3-5 months. It will take ~12 months for
complete replacement of the WHRU and bring GSP#5 back to normal operations.
Damage is covered by insurance (with deductible).
PTT, as parent company of PTTGC, is also involved in finding the root cause of the
oil leak at PTTGC’s oil offloading facility. The initial investigation did not find any
irregularities in operating procedures. Management expects to finalize the
investigation within a month from now. The cleanup has been completed and
initial compensation to directly affected parties paid out, and was under Bt50mn.
The company will continue to monitor the longer term environmental impact.
Earnings estimate trimmed from GSP#5 shutdown. We have lowered our forecast
for 2013F by 5% to reflect the effect of GSP#5 shutdown, but this does not materially
affect TP. We maintain our BUY rating on the stock given the undemanding valuation
of only 7-8x over the next three years vs. more than 10x for its peers and the Thai stock
market. We also reaffirm our TP of Bt400/share, based on sum-of-the parts valuation.