Thai Oil

Thai Oil Plc (TOP)
3Q13F could return to the black. After a net loss of Bt1.6bn in 2Q13, we expect
earnings to turn to a profit of Bt6.5bn in 3Q13F thanks to a higher crude run, stock
gain and lower FX loss. Market GRM is expected to improve slightly QoQ to US$4.2/bbl
in 3Q13F from US$3.6/bbl in 2Q13 although adjusted Singapore GRM dipped from
US$3.5/bbl to US$2.1/bbl, because TOP’s product yield had a lower proportion of
gasoline. We note that crack spread for ULG95 fell more sharply than for other
products in 3Q13. We also estimate a stock gain of US$3/bbl or Bt2.6bn on higher oil
prices during the quarter.
Crude run improved after 2Q13 shutdown. TOP was able to continue maximizing
its crude run despite weaker market GRM after the integration with its petrochemical
complex. Crude run increased from 102% in 2Q13 to 104% in 3Q13F after the 15-day
maintenance shutdown in 2Q13 of crude distillation unit 2 (CDU-2).
PX spread improved QoQ. Also behind strong earnings in 3Q13F was a widening in PX
spread over ULG95 to US$452/t from US$436/t in 2Q13. Given the weaker spread for
toluene, the company decided to run its aromatics plant at 89% in 3Q13F, up from 87%
in 2Q13, pushing its PX Max facility into higher gear to convert toluene into more PX to
enjoy better spread.
Lube oil to continue to improve QoQ. The lube base oil business continued to
improve QoQ on a rise in utilization rate to 112% in 3Q13F from 105% in 2Q13 plus a
widening in product spread to US$518/t from US$495/t. Management says competition
in higher-grade lube base oil is still high, but is limited to the automotive sector, which
accounts for 20% of total demand. The remainder is for bunker oil and the industrial
sector, which still require lower-grade lube base oil.
Major turnaround for CDU-3 in 2014F reaffirmed. Management reaffirmed its plan
to shut down its largest crude distillation unit with capacity of 165kbd (60% of total
capacity) for a major turnaround in 2014. The exact timing will be announced this
month, but is likely to be in 2Q14-3Q14 and for longer than the usual 30 days as it will
incorporate the refinery upgrading into this maintenance shutdown. Hence the crude
run could fall to 95% from the usual 100%.
Still a BUY with solid earnings in 3Q13F as near-term catalyst. We believe the
good showing in 3Q13 could act as a near-term share price catalyst as it may require
the street to raise forecasts. We maintain our mid-2014 TP of Bt76/share, based on
PBV of 1.5x (-0.6SD). We believe that with its strong cash position, it will be able to
deliver dividend yield of >4% for the next three years. We maintain our positive view on
the outlook of the oil refining business for the next two years given the balanced
demand/supply of oil refining capacity in the region.