PTT Global Chemical

PTT Global Chemical Plc (PTTGC)
- Refinery business to double 3Q13 profit qoq
We estimate 3Q13 net profit of PTTGC at B8.5bn, double from the prior quarter due
mainly to the refinery business. 1) There would be a stock gain of as much as
US$4/barrel or almost US$3.2bn, which is higher than the sector’s average of
around US$3/barrel, because PTTGC has an oil stock at the cost of lower than
US$100/barrel as a result of the maintenance shutdown in 2Q13. 2) Market GRM in
3Q13 is anticipated to rise 42.8%qoq to US$3.4/barrel along with wider spreads of
diesel and jet fuel. 3) The refinery would resume its utilization rate of 98% after
the overhaul shutdown. Meanwhile, profit from aromatics and olefins businesses
might decline from the prior quarter. Aromatics business might be suppressed by
paraxylene and benzene spreads that contracted 5.2%qoq and 20.7%qoq,
respectively, despite increasing utilization rate to 91% and 84% after a
maintenance shutdown in 2Q13. For olefins business, the impact from the lightning
strike at GSP#5 and a plan for a 50-day maintenance shutdown of I4-1 olefins
factory with an annual ethylene production capacity of 515,000 tons will make
combined ethylene factory utilization rate of PTTGC drop from 93% in the prior
quarter to 75%. At the same time, an unplanned shutdown of a LDPE plastic
factory also made polymer factory utilization rate decrease from 90% to 88%; this,
however, is insignificant as PTTGC has increased utilization rate of HDPE and LLDPE
factories to 108% to compensate for the shutdown. Although spreads of HDPE and
LLDPE are projected to widen by 3%qoq and 4%qoq in 3Q13, it would not be able
to compensate for a decrease in production volume. Furthermore, the profit
increase in 3Q13 would also be supported by a decrease in Fx loss from B2.7bn in
the prior quarter to B780m. However, PTTGC has to make provision for the damage
from the oil leakage accident southeast of Map Ta Phut at B1bn. Consequently,
overall, 9M13 net profit would equate to B24.8bn, increasing 2.1% from the same
period last year and accounting for 83% of our FY2013 forecast.
- 12%yoy weakness foreseen in 2013, before growing 15%yoy in
2014
Preliminarily, we maintain our net profit forecast for FY2013 although there is a
change regarding the provision for the oil leakage damage which is set at B1.5bn in
the forecast but is believed to be booked at B1bn in this quarter. Nevertheless,
there is still a chance that the company would make additional provision in 4Q13 if
the actual expense is higher than the provision. However, normalized profit in 4Q13
is anticipated to increase from 3Q13, particularly from the olefins business as the
LLDPE factory that underwent a maintenance shutdown in 3Q13 has resumed its
production since 25 September. Moreover, the GSP#5 is now being able to supply
raw material for PTTGC again by 50% after the lightning strike, which is earlier
than expected. As a result, in 4Q13, olefins and polymer factories of PTTGC would
be operated at a higher utilization rate when compared with 3Q13. In addition,
olefins spread is projected to increase following rising demands during a year-end
festive season. Furthermore, for the refinery business, GRM would also benefit from
the high season during winter, while the aromatics business would weaken as
spreads of paraxylene and benzene would decrease due to an increase in new
supply in 4Q13. Moreover, the company has also planned to shutdown its aromatics
factory for 25 days for changing the accelerator. With all these negative factors in
3Q13, the profit would drop 12.5%yoy in FY2013, before returning to grow again
by 15.2%yoy in 2014 after all factories could resume their normal operations.
- All negative factors pass in 3Q13. Upgrade to BUY
We upgrade our recommendation from HOLD to BUY as all negative factors would
have passed in 3Q13 and all troubled factories in 3Q13 would be able to resume
their production earlier than expected. Based on FY2014 fair value (DCF) at
B88.18, the current share price still has 16% upside.2013 (DCF) is B74.50/share
(falling from B77.92). Though there is some upside from new fair value, PTTGC
share price would face short-term pressure. Thus, we recommend "HOLD".