Bangchak Petroleum

Bangchak Petroleum (BCP)

Proceed investment in power and refinery businesses
According to the analyst meeting yesterday, there was nothing new about BCP;
the company was still marching forward with its investment expansion plan,
especially a solar power plant capacity expansion that would happen in the near
future. In 2H14, the company would recognize income from all of its solar
power plant projects with a combined capacity of 118 MW. A 48-MW solar
power plant phase 3 is finishing its construction in 2Q14, so share of profit from
solar power plants in 2014 would increase from 15% in 2013 to 22% in 2014,
which will help mitigate an impact from fluctuating earnings in the refinery
business on seasonal effect. However, for the refinery business, the company
has a plan to improve an efficiency of its refinery in the long run through an
Efficiency, Energy and Environment Improvement (3E) project, which aims to 1)
increase a capacity of the crude distillation unit 3 from 80,000 to 100,000
barrels a day; 2) undertake debottlenecking to increase run rate of the refinery;
3) change catalysts; and 4) build a 10-20 MW cogeneration power plant for
using in the refinery. This will help increase a run rate of the refinery to
120,000 barrel a day and reduce the production cost from present, resulting in
a US$1-2/barrel increase in GRM or a B2bn increase in EBITDA. 3E project
would use an investment of around B7bn; the company would gradually invest
since 2014 – 2018 and the project would finish in 2019

- Power business boosting profit growth in 2014
We estimate 4Q13 profit to decline 35%qoq as the company would not
recognize a high stock gain like it was in 3Q13. However, there would still be a
supporting factor from GRM that would widen during the winter, a high season
in which diesel and fuel oil demand usually increases. Moreover, in 4Q13, the
hydrocracking unit was able to resume its normal operation after a nine-day
temporary shutdown in 3Q13 from a problem at a cogeneration power plant of
PTT that usually supplies power to the refinery, so base GRM would normalize.
At the same time, a refinery utilization rate is projected to rise above 100,000
barrels a day, while the marketing business would also improve from 3Q13
thanking to the tourism high season which usually boosts the demand. Overall,
we project BCP’s profit to grow 13.3%yoy in 2013 and 9.0%yoy in 2014. Effects
from the refinery shutdown would be compensated by income from phase 1 and
2 of the solar power plant that will be recognized for a full year while the phase
3 will start to generate income since 2H14.
- Buy. Lowest PER among peers with attractive dividend yield
FY2014 fair value (DCF) is B43.60/share. We reiterate to buy BCP as 2014 PER
is only 8.6x, the lowest among refinery companies and lower than the regional
average of 12.4x. Dividend yield is expected at 4-6% in the next three years.