PTT Global Chemical

PTT Global Chemical Plc (PTTGC)
Above estimates
PTTGC reported a 3Q13 net profit of Bt9,610m, down 25% YoY but up 130% QoQ. Stripping out Bt4.3bn in inventory and hedging gains, a Bt1bn provision for expenses related to the offshore oil pipeline spill, and an FX loss of Bt222m, core earnings would be Bt6,605, down by 26% YoY and 12% QoQ. The bottom-line was 8% above our estimate and the consensus on bigger inventory and hedging gains than modeled. But core profit was 9% below the expectations of ourselves and the street, due to higher production costs than assumed.
Results highlights
The core earnings contraction was due to: 1) lower olefins product sales volumes (down by 16% YoY and 12% QoQ to 576kt, due to an unplanned shutdown at the LDPE plant and lower run rates at olefins facilities), 2) slimmer market GRM (down 41% YoY but up 46% QoQ to US$3.5/bbl) and 3) squeezed aromatics margins—PX spread dipped 5% QoQ (rose 19% YoY) to $511/t, while BZ spread dived 22% QoQ (up 19% YoY) to $321/t.
However, greater sales volumes of petroleum and aromatics products and the fatter HDPE and LLDPE spreads supported the 3Q13 core profit. HDPE spread inched up 3% YoY (softened 3% QoQ) to US$569/t and LLDPE spread shot up 38% YoY (flat QoQ) to $570/t. The QoQ bottom-line jump was driven by inventory and hedging gains of Bt4.3bn ($5.2/bbl)—the 2Q13 inventory loss was Bt1bn ($1.2/bbl)—and a shallower QoQ FX loss.
Outlook
We expect 4Q13 core earnings to rise both YoY and QoQ, driven by greater sales volumes of olefins products (the LDPE plant has resumed a full capacity run and GSP#5 re-started limited production in early Oct) and fatter chemical spreads, particularly olefins spreads, in tandem with high seasonal demand.
What’s changed?
Even though 9M13 core earnings represent only 73% of our FY13 core profit forecast of Bt33,638m, we maintain our projection unchanged, as we anticipate strong QoQ core profit growth in 4Q13 (see above).
Recommendation
The street-beating 3Q13 bottom-line coupled with expectations of a core operational improvement in 4Q13, driven by greater sales volume and fatter product spreads, should catalyze the share price in the near-term. Moreover, an olefins margin up-cycle next year will facilitate long-term stock price upside, we believe. PTTGC currently trades at an FY14 PER of 9.5x, a steep discount to the regional mean of 14.8x. Furthermore, its FY14 dividend yield of 4.7% is significantly higher than the Asian average of 3.3%.