PTT Global Chemical

PTT Global Chemical Plc
Earnings to improve QoQ in 3Q13F on stock gain, still a BUY. Despite several
incidents in 3Q13F that affected operating performance, we expect a material
improvement in PTTGC’s 3Q13F earnings QoQ, thanks to a huge stock gain of Bt3bn or
US$5.7/bbl. We estimate net profit at Bt8.5bn in 3Q13F, up 104% QoQ but down 34%
YoY. Operations in the quarter suffered three hits: the unplanned shutdown of its LDPE
plant, the oil leak during crude unloading and then the disruption in gas supply. Relief
was provided in the form of stronger product spread QoQ, especially for olefins. We
expect earnings to continue to recover in 4Q13F and 2014F. With valuation attractive at
8.9x P/E in 2014F, compared with peers’ 16x, we maintain our BUY rating with a mid-
2014 TP of Bt92/share.
Utilization rate higher for refinery but lower for olefins. The refinery ran nearly
full out at 98% in 3Q13F, up from 63% in 2Q13 (38-day planned shutdown). The oil spill
in July had minimal impact on refinery operations. Aromatics plant operating rates
also increased, to 91% in 3Q13 from 84% in 2Q13. Unfortunately, olefins plants ran at
only 75%, slashed from 93% in 2Q13 by an unplanned shutdown of the LDPE plant and
disruption in gas supply from PTT, which feeds ethane directly to olefins cracker plant
I4-2. The company has shifted gas feedstock from the dual-feed olefins plant (I4-1) to
I4-2, changing the portion of gas in the feedstock mix in 3Q13F to >90% from 90%.
GRM and olefins spread better QoQ. Although Singapore GRM weakened QoQ, we
believe PTTGC’s market GRM improved on higher utilization and stable crack spread for
middle distillates, which accounts for 60% of total refined oil products. PTTGC’s GRM
was not affected by the weak gasoline crack spread, which was the chief factor behind
the lower Singapore GRM in 3Q13. We believe there was a small improvement in
olefins spread QoQ on higher HDPE price (up 3% QoQ), the key parameter in the
netback pricing formula with PTT. We estimate aromatics spread fell 10% QoQ due to
higher feedstock price, mainly condensate (up 7% QoQ).
4Q13F operating performance could improve QoQ from higher utilization. We
expect a higher operating rate in 4Q13F since the LDPE plant resumed normal
operations in late September and PTT’s gas separation plant was up and running at
50% production rate in late October, providing more feedstock for PTTGC’s ethylene
cracker. Also positive for profit is an improved GRM, mainly for middle distillates
products in 4Q13, due to seasonal demand. Product spread for olefins products is
expected to be sustained at current levels despite slowing market activity in the last
quarter. Key concerns remain focused on aromatics spread due to market anxiety on
new supply and potential stock loss if oil price continues to decline from current levels.