PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

- Strong financial status. Ready to start new projects to boost growth
PTTEP has been expanding its investment, aiming for doubling the production
capacity to 600,000 barrel/day within 2020. PTTEP has been keeping its
production capacity high for current projects, as well as exploration and
development of new projects and acquisition property (M&A), focusing on
active projects to make spontaneous profit. Currently, PTTEP has participated
in the auction for assets of Hess Corporation, which is among world-class U.S.
major oil companies. Hess is selling two projects in Thailand: 1) Sinphuhorm
(Hess holding 35% stake) with 100 million cubic feet/day capacity of natural
gas production, and 2) Pailin (Hess holding 15% stake) with 360 million cubic
feet/day capacity of natural gas production, as well as two projects in
Indonesia: 1) Pangkah (Hess holding 65% stake), and 2) Natuna A (Hess
holding 23% stake). Both projects in Indonesia have the total capacity of
80,000 barrel/day, or 30,000 barrel/day, according to Hess’ shareholding. The
auction result would be announced in December 2013. Currently, PTTEP has
US$2bn cash flow and 0.35x debt-to-equity ratio, while PTTEP's operating
cash flow is at the average of US$4bn/year. Deducting US$3-3.5bn CAPEX on
current projects and other projects, PTTEP would still have enough cash flow
to invest on new projects without financial problems.
- Next three years profit to grow averagely 7%p.a. (CAGR)
Preliminarily, we maintain FY2013-2014 profit forecast. 4Q13 profit is
projected to drop by 20%qoq due to the following: 1) Overall production cost
would increase, as income from Montara that has high production cost and
impairment cost of US$80/barrel would be booked for the whole quarter,
increasing PTTEP's overall impairment cost by 19.3%qoq to US$18.5/barrel.
2) Yadana and Yetagun projects in Myanmar will undergo a maintenance
shutdown in late-2013 for 14 days. 3) There would be change in tax expense,
as well as administrative cost e.g. employee bonuses for FY2013 earnings
result, as usual in 4Q. Thus, 4Q13 expense would be higher than other
quarters. FY2014 profit is projected to grow 7.6%yoy. 2014 production is
projected to rise by 13%yoy, as Zawtika's additional gas production capacity
of 300 million cubic feet/day will be booked from 2Q14 on, and production
from Montara would be recognized for the whole year with total capacity of
20,000 barrel/day. Continuous increase in sales volume is in line with PTTEP's
10-year strategy to boost the production capacity to 600,000 barrel/day
target. Thus, PTTEP's profit is likely to increase, continuously making the year
high.
- Reiterate "BUY". Over 17% ROE. Among regional best.
We derive end-2014 fair value (DCF) at B212.26/share. Current share price
has 25% upside and 17.9% return on equity (ROE), which is among the
highest in the region. We reiterate "BUY".