PTT

PTT Plc

BUY maintained on solid earnings. We maintain our BUY call on PTT for its solid
earnings performance despite several operating road-bumps from unplanned shutdowns
of its own plants and associates’. We continue to expect core profit growth of 15.5% YoY in
2014F after a slight decline of 2.5% YoY in 2013F on the unplanned shutdown of gas
separation plant unit 5 (GSP5) and adverse impact from three incidents at PTTGC: the
unplanned LDPE shutdown, the oil spill and lower utilization of the olefins cracker due to
gas supply disruption. We confirm our mid-2014 TP of Bt400, based on sum-of-the-parts.
GSP#5 could resume 100% operations sooner than expected. GSP#5 resumed
operations at 50% in Oct after the damaged waste heat recovery (WHR) unit was removed
and the second unit was inspected to ensure its safety. This could be ramped to 100% in
1H14 before the new WHR is installed in mid-2014. The new WHR will ensure smoother and
more energy-efficient operations in 2H14.
Upside from LPG and NGV price adjustment. Management expects the government to
eventually compensate it for LPG losses after it succeeded in revising LPG price to reflect
PTT’s cost. After the public gets used to higher LPG prices, the next step will be to raise NGV
prices to better reflect actual cost of >Bt15/kg, vs. the current price of Bt10.5/kg. This price
adjustment remains under discussion with the Ministry of Energy. In the meantime,
management believes the loss burden from NGV will be capped by not raising the number
of NGV stations to over 500 from the current 468 until prices can be adjusted. Note that
PTT had to bear a loss of Bt15bn in 9M13 from its NGV business.
IPO of GPSC is possible for mid-2014. PTT has been restructuring the holding structure
of the group’s electricity generating business and to this end has set up Global Power
Synergy Company (GPSC) as the flagship. The current installed capacity of GPSC is 1,357MW,
and this will go up to 2,531MW by the end of this year upon more asset transfers from
companies under the PTT umbrella. Target capacity is set at 6,000MW by 2023.
Management also targets listing this company in the stock market by mid-2014.
Earnings outlook for 2014F. We estimate core profit growth of 15.5% YoY in 2014F, driven
mainly by more profit contribution from PTTEP (from full-year operation of Montara and
Zawtika). In addition, we also expect PTT’s gas business to improve YoY when GSP#5 gets
back to 100%. This will also benefit PTTGC’s olefins operation, which was affected by gas
supply disruption in 2013. Compensation for LPG and NGV losses would give a nice earnings
upside to our estimate.
Valuation and risks. PTT’s valuation remains attractive in our view with 2014 P/E of only
7.5x, almost half of the market P/E and vs. more than 10x for its peers. This is also
supported by 4.3-5.1% dividend yield from strong cash flow. We reaffirm our BUY rating
with TP of Bt400/share, based on sum-of-the parts valuation. Key risks are volatile oil and
petrochemical prices and unplanned shutdown of plants under PTT group.