PTT

PTT Plc
Profit surge QoQ in 3Q13F on better associate performance. By our estimates, PTT’s net profit could more than double QoQ to Bt27.4bn in 3Q13F, though still down 24% YoY, despite the unplanned shutdown of gas separation plant #5 (GSP#5) from mid-August. The primary impetus will be stronger performance of oil refining and petrochemical associates, with an estimated jump in contribution to Bt8.4bn in 3Q13F from Bt1.3bn in 2Q13. Help will also be provided by lower FX losses QoQ. We expect the company to announce results on Nov 11.
Gas business hurt by unplanned shutdown of GSP#5. Gas sales volume is likely to slip 3% QoQ to 4,540mmcfd, mainly from lower demand from the power sector (EGAT and IPPs) as well as reduced utilization rate at gas separation plants (GSP) upon the unplanned shutdown of GSP#5. Demand for NGV rose 2% QoQ to 8.7kt/d. With gas cost higher, the burden from NGV losses is expected to be higher at Bt5.5bn in 3Q13F from Bt5bn in 2Q13, since its selling price is capped at Bt10.5/kg. GSP sales volume also fell 11% QoQ, mainly LPG (-21% QoQ) as a consequence of the closure of GSP#5. Overall, we estimate EBITDA of its gas business will plunge 24% QoQ and 43% YoY to Bt6.8bn.
Oil refinery associates key to profit. Oil refining will be the chief supplier of earnings in 3Q13F due to higher GRM and stock gain. We expect its oil refining associates to post a sharp turnaround in 3Q13F to profit of Bt4.1bn from a loss of Bt1.2bn in 2Q13 based on equity holding. Overall contribution from associated companies is expected to rise to Bt8.3bn in 3Q13F from Bt1.3bn in 2Q13, but still be below this year’s peak of Bt10.1bn in 1Q13. Higher coal sales volume (+18% QoQ) with a stable margin will boost coal profit by 15% QoQ.
GSP#5 not back to 100% until 2H14. PTT says GSP#5 resumed operations at 50% on Oct 21 after the damaged waste heat recovery (WHR) unit was removed and the second unit was inspected to ensure its safety. With only one WHR unit available, the plant can run at only half capacity. The exact timeframe for the new WHR unit is unknown, but is likely to be in 2H14. The company has assessed the damage at US$96mn for a 5-month closure as initially projected. This could be lessened since the plant was able to start partial operations sooner than expected. Though insurance is likely to cover this, the company will be setting aside provisions just in case. It may also have to reconsider shutdown plans for 2014, including the ethane separation plant and GSP#6 in 1Q14, if GSP#5 is still unable to operate normally.
Valuation and risks. Strong earnings recovery in 3Q13F despite a loss of production at GSP#5 could be a near-term share price catalyst. We reaffirm our BUY rating on an undemanding valuation of only 7-8.6x over the next three years vs. more than 10x for its peers and the Thai stock market. We also confirm our TP of Bt400/share, based on sum-of-the parts valuation.