PTT

PTT Plc
Investment thesis
We recently accompanied PTT’s CFO, Mr Surong Bulakul, on an NDR to the US. Investors expressed concern about the threat posed by non-conventional energy development. On a company-specific level, they were worried about PTT’s outlook, due to its position as a national service. The CFO cited that the subsidies for LPG and NGV were the key drawback to its FY13 NPAT. He guided for <Bt100bn (~10% below the street estimate). The fund managers mostly asked about price deregulation. On the flipside, they showed interest in PTTEP, due to its production growth outlook and upstream acquisitions, and PTTGC’s scope for expansion. The key takeaways are summarized below.
Subsidy continues, but tapering ahead
The gas subsidies were a common question, as they have been a major drag on PTT’s performance. The fund managers appeared skeptical about price uplift plans. The CFO said the impact of the subsidies approximate 30%, or Bt30bn of FY13 NPAT—10% on LPG and 20% on NGV. He was positive on PTT’s ex-GSP LPG price rise sometime next year, citing that the govt was committed following the cooking gas price adjustment in Sept. But he downplayed the chances of NGV price deregulation—at best it will come later. 
Gas outlook
Another concern is the gas demand outlook. The CFO cited that gas demand doesn’t matter—the firm is set to post 10% YoY growth to 5,100mmcfd for FY13 and there will be an influx of new gas-fired power stations over the next 10 years. But the supply side is of concern, due to the near depletion of Gulf of Thailand gas and that Myanmar may increase indigenous gas usage. So, LNG will be the gas supply source of the future. PTTEP has prioritized organic asset development and is seeking new gas assets in order to achieve its 600kbd target by FY20, mainly in Asia. It is also interested in acquiring US shale gas together with international partners, but no deals have been closed yet. Due to US restrictions on gas exports, the group would rather aim to integrate gas value chains for export.            
Asset monetization
PTT aims to exit 1-2 refining assets—the move is to reduce its monopolistic position. One obvious step would be to dilute its 36% holding in SPRC by listing it on the SET next year, followed by its power flagship, GPSC, by 2H14. GPSC is undergoing financial restructuring and integration with other PTT group power assets. Currently, it has 1,300MW of capacity and targets 5,000-6,000MW by FY20. PTT is also looking to spin off its oil pipeline business into an infrastructure fund. But a dispute between the shareholders has held up the deal.
Myanmar opportunities
Apart from growing E&P activities, the group aims to assist the upgrading project of a 50KBD refining plant. The CFO said there is potential for power market growth in Myanmar, given its electricity shortage. Power usage in that country is currently 3,000MW, only one-ninth that of Thailand. PTT is studying the feasibility on 3-4 projects—each of which has a capacity of 100-500MW.