Bangchak Petroleum

Bangchak Petroleum Plc (BCP)
Investment thesis
Expectations of strong bottom-line growth in 3Q13 should boost the share price going forward, even though the core profit may disappoint the market slightly, due to lower-than-previously expected earnings at the marketing business. We anticipate that the core operation will regain momentum in 4Q13, driven by high seasonal demand. Moreover, even though we are bearish about refining fundamentals, we think BCP’s unique business model (refinery + marketing + solar power) will generate greater investor interest in the months ahead. Its valuation remains undemanding—an FY14 PER of 8.6x, a discount to the regional mean of 10.8x—and it offers an FY14 dividend yield of 5.2%, higher than the Asian refinery average of 3.3%.
Strong earnings improvement expected for 3Q13
We expect BCP to post a 3Q13 net profit of Bt2,003m, up by 87% YoY and 392% QoQ. Stripping out an assumed FX gain of Bt15m (against losses in 3Q12 and 2Q13), an inventory gain of Bt1,417m (against a loss in 2Q13), 3Q13 core earnings would be Bt858m, a reversal from the core loss of Bt352m reported for 3Q12, but down 16% QoQ. The inventory gain was the main driver of assumed bottom-line growth.
The expected YoY core profit rise was led by: 1) a greater crude run (up 161% YoY to 101KBD; there was a fire at CDU No.3 on July 4, 2012), 2) greater marketing sales volume (up 19% YoY to 405m liters/month), 3) fatter marketing margin (up 14% YoY to Bt0.50/liter) and 4) a bigger earnings contribution from the solar power business. Note that market GRM weakened 64% YoY to $5.1/bbl. The assumed QoQ core profit contraction was due to: 1) lower market GRM (down 11% QoQ), 2) lower marketing margin (down 15% QoQ), and 3) reduced marketing sales volume on seasonality (down 2% QoQ), despite a 6% QoQ greater crude run—there was an unplanned shutdown during early April 2013.
4Q13 core profit to rise both YoY and QoQ 
Management guides that BCP’s 4Q13 core earnings will increase YoY and QoQ, driven by a greater crude run, increased marketing sales volume, a fatter market GRM and a bigger contribution from the solar power business. The crude run should rise both YoY and QoQ, as the refinery resumed normal operations in October 2012 and the fourth-quarter is normally a period of high seasonal demand for petroleum products. Even though, the firm’s mean crude run in 4Q13-to-date of 101KBD (up from 85KBD in 4Q12) is close to that of 3Q13, it is expected to increase going forward. 
Marketing sales volume should rise both YoY and QoQ in tandem with a greater crude run. Furthermore, BCP’s market GRM in 4Q13 is expected to fatten QoQ, driven by high seasonal demand. However, the mean Singapore benchmark GRM in 4Q13-to-date has dropped 35% QoQ to US$3.8/bbl. Note that solar farms-phase 1 made a full profit contribution in 1Q13 and phase 2 in 2Q13.