PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

- Lower Fx loss boosts 3Q13 net profit to grow 67%qoq... better than expected
PTTEP's 3Q13 net profit was reported at B17.8bn, leaping 67.0%qoq which is
better than expected, as we had overestimated tax expense by 20%. 3Q13
total tax expense was B8.8bn, so effective tax rate dropped from 59% in
2Q13 to 33%. Tax expense decreased mainly due to the following: 1) Fx loss
dropped by 79.2%qoq to B661bn, as THB weakened only slightly compared to
2Q13. 2) Income from domestic petroleum sales decreased, so petroleum
income tax of a rate of 50% decreased. 3) There was no tax for Montara due
to tax loss carry forward (there would be no tax for Montara throughout its
duration due to tax loss carry forward). Other items were as expected. 3Q13
total income in USD fell slightly by 0.33%qoq to US$1.82bn or B57.9bn (3Q13
total income in THB grew 4.7%qoq, as THB/USD exchange rate depreciated by
5.3%qoq in 3Q13). Though average petroleum sale price rose by 0.84%qoq to
US$65.71/barrel, in line with crude oil sale price that rose by 5.4%qoq to
US$100.33/barrel and gas price that stayed flat at US$7.95/million BTU, the
increase in sale prices was negated by the following factors: 1) Sales volume
dropped by 2.1% to 286,000 barrel/day, as production capacity of Vietnam
16-1 and Bongkot North field declined, but it was partially compensated by
increasing capacity of Montara project. 2) Production and exploration
expenses increased by 10.4%qoq to US$34.09/barrel due to rise in
depreciation, exploration expense and production cost. Overall, 9M13 net
profit was B48.7bn, growing 11.9%yoy, making up 79% of FY2013 earnings
forecast.
- FY2013 earnings result to get higher than expected. To grow continuously in 2014
Preliminarily, FY2013 profit is likely to get higher than projected, as what
actually happen are different from our assumption: 1) Dubai crude oil price is
projected at US$100/barrel, whereas actual average price is US$105.19/barrel
YTD; gas price is projected at US$7.5/million BTU, whereas 9M13 average
price is US$7.97/ million BTU. 2) Montara B630m insurance claim is excluded,
but would be recognized in 4Q13. However, 4Q13 earnings result would be
pressed by production cost that would continue rising from 3Q13, especially
depreciation that is projected to rise 19.3%qoq to US$18.5/barrel after
Montara has started running at a full capacity. Overall, PTTEP’s profit is
projected to grow by 7.6%yoy in 2014, thanking to continuously increasing
production volume. In 2014, Zawtika project in Myanmar will be recognized
with 300 million cubic feet/day capacity, consistent with the company’s 10-
year strategy to increase the production to 600,000 barrels/day.
- 26% upside from fair value. Reiterate "BUY"
We derive end-2014 fair value (DCF) at B212.26/share, which implies 26%
upside. We reiterate "BUY".