Thai Oil

Thai Oil Plc (TOP)
- High net profit returns in 3Q13
TOP reported 3Q13 net profit of B7.6bn, versus a net loss of B1.56bn in the prior
quarter, exceeding our projection by 15% as we had underestimated market GRM
and stock gain. Market GRM in 3Q13 increased 38.8%qoq to US$5/barrel as spread of
middle distillate (diesel and jet fuel) has widened significantly in the first two months
of 3Q13. Moreover, the company booked a considerable stock gain of US$3.8/barrel
or B3.3bn worth as the crude oil price at end-3Q13 has risen US$8/barrel from end-
2Q13, comparing to a stock loss of B1.1bn last quarter. For the refinery business,
TOP has exercised the BOI tax privilege of B1.02bn for its environmental impact
reduction investment project, so earnings from the business in 3Q13 could reverse to
a net profit of B5.5bn, compared with a net loss of B2.9bn in 2Q13. In addition, profit
from the aromatics (TPX) and lubricant businesses (TLB) grew 52.3%qoq and
99.4%qoq to B1.1bn and B666m, respectively. The aromatics business has been
supported by utilization rate and product to feed margin that increased 9.1%qoq and
11.8%qoq, respectively, while the lubricant business has also benefited from a
6.6%qoq and 19.7%qoq increase in the utilization rate and profit to feed margin,
respectively. In addition, a little baht weakness has made TOP’s Fx loss decrease to
B249m from B2.8bn in the prior quarter. Overall, 9M13 net profit equated to
B10.4bn, close to that of the same period last year, making up 80% of FY2013
forecast.
- Profit to weaken in short term but advantageous in long run
We revise down our FY2014 net profit forecast to reflect a major turnaround of CDU
unit 3 with a capacity of 165,000 a day for 40 days in the middle of the year, which
would make the utilization rate drop to only 95% from 100% previously projected.
Accordingly, the new forecast is 9.35% lower than the previous one. On the contrary,
we maintain our net profit forecast for FY2013, projecting the profit in 4Q13 to
decline as a result of weaker stock gain. The approaching winter which usually comes
together with increasing demands for oil as fuel is believed to help boost the GRM in
the last two months of the year from only US$3-4/barrel at present. Furthermore,
maintenance shutdowns of refineries in Europe would make some supply disappear,
which would help negate an effect from new capacity from a 400,000-barrel-a-day
Jubail refinery in Saudi Arabia that is starting a commercial run in late 4Q13.
Consequently, we preliminarily project the GRM in 4Q13 to stabilize from the previous
quarter. Similarly, price and spread of aromatics products would remain high close to
those of 3Q13 because of a polyester season during winter, which would help negate
an impact from additional paraxylene supply from a 800,000 ton/year capacity
Tenlong factory that had started its commercial run in late 3Q13.
- Buy. PER lower than regional average
Under the new forecast and a change to use FY2014 fair value at B76.36 (DCF), 21%
upside is estimated. We reiterate to buy. The current PER is low at only 10x,
compared with the sector’s average of 12.5x.