PTT

PTT Plc

FY2014 profit to grow from petroleum and olefins
According to the analyst meeting yesterday, there was no new thing. PTT will
continue long-term strategy to increase added value in each business through
subsidiaries which are the flagships in each business: PTTEP (petroleum), PTTGC
(petrochemical) and TOP (refinery). Moreover, FY2014 earnings are projected to
be prosperous. Core businesses that will boost PTT's profit are as follows: 1)
Natural gas business (PTT) - sales volume of products from gas separation plant
is projected to increase, as GSP#5 would resume its operation for a full year after
the unplanned shutdown due to lightning strike in 3Q13. 2) Petroleum business
(PTTEP) - Production and sales volume are projected to increase in 2014, as
Zawtika's (M9) additional gas production capacity of 300 million cubic feet/day
will be booked from 2Q14 on. Dubai crude oil price is projected around US$103-
108/barrel, higher than our projection at US$100/barrel. 3) Olefin business
(PTTGC) - Olefins sales volume is projected to increase, as GSP#5 is now being
able to supply feedstock for olefins factory and LDPE factory would resume
production for a full year, after an unplanned shutdown in 3Q13. Moreover,
spread of olefins products would be in an uptrend in 2014 due to increasing
demand, as global economy has been recovering, especially China that is the
regional's major petrochemical consumers. Moreover, there would not be new
supply of olefins business in next few days.
- Pressure from new supply to press refinery and aromatics businesses
FY2014 profit from refinery and aromatics businesses is likely to stay flat from
2013, as the businesses would be suppressed by new supply. For refinery
business, there is new supply from Jubail Refinery, Saudi Arabia, with the capacity
of 400,000 barrel/day since 4Q13. Moreover, three refineries in China (total
480,000 barrel/day capacity) and one refinery in India (120,000 barrel/day
capacity) would be working in 2014. However, there might be permanent
shutdowns of refineries in China, Japan and Australia (total 852,000 barrel/day
capacity) in 2014, so there would be only total 148,000 barrel/day new supply.
Thus, 2014 refinery utilization rate is likely to stay at US$4-5/barrel. For
aromatics business, 2014 spread is likely to decline slightly from 2013 due to new
supply; from Tenglong factory with Px production capacity of 800,000 ton/year in
4Q13 and a factory in Korea with additional paraxylene production capacity of
4,100,000 ton/year. PTT's FY2013 profit is projected to drop by 6%yoy, but
possibly rebound by 10%yoy in 2014, as all of PTT's factories would resume at
their full capacity after unplanned shutdowns in 2013, including additional
capacity from PTTEP's Zawtika project. Moreover, spread of olefins products is
likely to increase.
- BUY for 32% upside. PER lower than regional average
We switch to use 2014 fair value, DCF and sum of parts, at B407.14/share. We
reiterate “BUY”. The current share price has 32% upside. 2013 PER is low at only
9.2x, versus the regional average of 11x. Dividend yield is expected at 4% p.a.
The share price is substantially laggard peers.