PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

- 3Q13 profit leaps 130.4%qoq, better than expected

PTTGC posted 3Q13 net profit at B9.6bn, jumping 130.4%qoq – better than
expected because we had underestimated the stock gain. In 3Q13 PTTGC could book
a stock gain of US$4.21/barrel or B3.8bn worth, compared with a stock loss of
B1.4bn in the previous quarter, while Fx loss decreased from B2.7bn to B738m.
These two extraordinary items were a key factor making 3Q13 profit surge
significantly. Excluding such items, earnings before interest, taxes, depreciation, and
amortization (EBITDA) with stock gain/loss included were found to decline 2.1%qoq
as affected by decreasing profit from petrochemical business as a result of the
following reasons. 1) Overall market to feed margin of aromatics products dropped
20%qoq even though the utilization was increased to 91% from 84% in the previous
quarter in which there was a maintenance shutdown. 2) Spreads of core products:
HDPE – Naphtha and MEG – 0.65 Ethylene decreased 3%qoq and 19%qoq to
US$569/ton and US$284/ton, respectively. 3) The impact from the lightning strike at
GSP#5 and a 50-day planned maintenance shutdown of I4-1 olefins factory with an
annual ethylene production capacity of 515,000 tons will make utilization rate of
PTTGC’s olefins factory drop from 93% in the prior quarter to 75%. In addition, an
unplanned 78-day shutdown of a LDPE plastic factory also made polymer factory
utilization rate decrease from 90% to 88%. Nevertheless, the earnings in 3Q13 were
still supported by profit from the refinery business as market GRM jumped as much
as 47%qoq to US$3.48/barrel following wider spreads of finished oil (diesel and jet
fuel). Moreover, the refinery has resumed its full capacity of 98%, after decreasing
to 63% in the previous quarter as a result of a maintenance shutdown. PTTGC has
also had to set provisioning of B1.05bn for the damage from the oil leakage accident
southeast of Map Ta Phut Consequently, overall, 9M13 net profit equated to
B25.8bn, increasing 6.7% from the same period last year and accounting for 87% of
our FY2013 forecast.
- Profit to weaken 12%yoy in 2013 but 15%yoy growth foreseen in 2014
Preliminarily, we foresee that FY2013 profit might be higher than our previous
projection due to the following factors. 1) A LDPE factory could resume its
production one month earlier than expected. 2) The GSP#5 could resume its
operation earlier than projected; on 21 October, the plant was able to produce at
50% of its capacity, thus allowing the olefins factory to run at a higher utilization
rate than previous predicted. 3) The provisioning for the oil leakage damage was set
at B1.5bn in the forecast but is believed to be booked at B1.05bn in this quarter,
while there is still a chance that the company would make additional provisioning in
4Q13 if the actual expense is higher than the provision. However, we project 4Q13
net profit to weaken from 3Q13 as there will not be high stock gain like it was in
3Q13. Nevertheless, there will still be a benefit from increasing olefins production
volume after the LDPE factor resumed its normal operation since 25 September after
the shutdown in 3Q13 and the GSP#5 is now being able to supply raw material for
PTTGC again by 50% after the lightning strike, which means in 4Q13 olefins and
polymer factories of PTTGC would be able to operate at a higher utilization rate when
compared with 3Q13. In addition, olefins spread is projected to increase following
rising demands during a year-end festive season. Furthermore, for the refinery
business, GRM would also benefit from the high season during winter, while the
aromatics business would weaken as product spread would decrease due to an
increase in new supply in 4Q13. Moreover, the company has also planned to
shutdown its aromatics factory for 25 days for changing the accelerator. With all
these negative factors, the profit would drop 12.5%yoy in FY2013, before returning
to grow again by 15.2%yoy in 2014 after all factories could resume their normal
operations.
- Buy. 2014 PER is only 10x, lower than regional average
FY2014 fair value (DCF) is B88.18. We reiterate BUY. The current share price still
has 11.3% upside. 2014 PER is only 10x, lower than the regional average of 12x.