Bangchak Petroleum

Bangchak Petroleum Plc (BCP)      
Core earnings below estimates
BCP reported a 3Q13 net profit of Bt1,359m, up by 27% YoY and 234% QoQ. Stripping out an FX gain of Bt44m and inventory and hedging gains of Bt1,156m, core earnings would be Bt162m, a turnaround from the core loss of Bt352m reported for 3Q12, but down 84% QoQ. The bottom-line was below our estimate, due to lower-than-expected inventory and hedging gains (but was in line with the consensus). Core earnings were also somewhat below our model (and the street number), due to lower-than-assumed market GRM.
Results highlights
The YoY core profit rise was led by: 1) a greater crude run (up 161% YoY to 101KBD; there was a fire at CDU No.3 on July 4, 2012), 2) increased marketing sales volume (up 19% YoY to 405m liters/month), 3) fatter marketing margin (up 20% YoY to Bt0.53/liter) and 4) a bigger earnings contribution from the solar power unit. Note that market GRM weakened 66% YoY to US$4.7/bbl. The QoQ core profit contraction was due to: 1) a lower market GRM (down 17% QoQ), 2) a slimmer marketing margin (down 10% QoQ) and 3) 2% seasonal marketing sales volume slippage.
Outlook
BCP’s 4Q13 core earnings are expected to increase YoY and QoQ, driven by a greater crude run, increased marketing sales volume, a fatter market GRM and a bigger contribution from the solar power business. The crude run should rise both YoY and QoQ, as the refinery resumed normal operations in October 2012 and the fourth-quarter is normally a period of high seasonal demand for petroleum products. Marketing sales volume should rise both YoY and QoQ in tandem with a greater crude run. Furthermore, BCP’s 4Q13 market GRM is expected to fatten QoQ, driven by high seasonal demand.
What’s changed?
While we have revised up our FY13 net profit forecast 7% to Bt5,443m to fine-tune for extra gains booked in 9M13, we have cut our FY13 core earnings projection 27% to Bt3,740m to factor in the following changes to our assumptions: 1) market GRM down 11% to US$6.2/bbl and 2) marketing margin down 15% to Bt0.55/liter.
Recommendation
Expectations of seasonally-driven core earnings growth in 4Q13 should boost the share price going forward. Moreover, even though we are bearish about refining fundamentals, we think BCP’s unique business model (refinery + marketing + solar power) will generate greater investor interest in the months ahead. Its valuation remains undemanding—an FY14 PER of 8.4x, a discount to the regional mean of 11.1x—and it offers an FY14 dividend yield of 5.3%, higher than the Asian refinery average of 3.2%.