Bangchak Petroleum

Bangchak Petroleum Plc (BCP)

 2014F another good year despite shutdown 
 - Strong EBITDA in 2014F despite lower crude run 
 - Solar power business to support profit
 - Reaffirm BUY on attractive valuation and yield

Still a BUY with attractive return on TP Bt44, despite the share outperformance, up 21% over the past two months vs. -2% to +14% for refinery peers and +6.8% for the energy sector. We like its improving and more sustainable earnings, underwritten by its solar power business. Its oil refining business should also generate better profit after the major turnaround in 2014F, followed by completion of the efficiency improvement project in 2018F. Valuation wise, the current P/E of 8.8x in 2014F looks undemanding compared with 12.7x for regional peers.
BCP’s EBITDA target for 2014F is >Bt10bn, backed largely by the solar power business. Refinery earnings are expected to decline ~10% YoY on the planned 2Q14 maintenance shutdown. This represents growth of 7% YoY; 2013 was distorted by Bt1.5bn insurance compensation. SCBS’ forecast is more conservative with EBITDA of Bt9.4bn in 2014F; note that we do not include the insurance compensation for opportunity loss during the extended maintenance shutdown. 
Crude run down ~10% YoY on planned 46-day shutdown of the 80kbd-crude distillate unit, lowering profit contribution from oil refinery in 2014F. This unit was damaged by a fire in 2012 and the normal 30-day period for a major turnaround is being extended by 16 days to install the new refinery column. This will boost its refining capacity to 140kbd from 120kbd. The company can claim insurance compensation for the opportunity loss during the plant shutdown and the insurance company will also pay for the new column (~Bt400mn). The maintenance shutdown will reduce crude run to 90-94kbd (75-78% utilization) from 99.3kbd (83% utilization). The fall in utilization will also soften GRM to US$7/bbl from US$7.53/bbl. 
Solar project to be completed in 2014F. Currently, only 70MW of the total 118MW of BCP’s solar power plants (59%) is operating. The remainder will gradually start up over the course of this year with the last unit (16MW) starting up in July. This will be key to BCP earnings growth in 2014-15F. By our estimates, a full year of the entire 118MW solar power will generate EBITDA of Bt2.8bn p.a. Profit contribution from solar power is expected to increase to 22% in 2014F and 28% in 2015F from 15% in 2013, easing the volatility of BCP’s cash flow in the longer term.   
Investment of Bt28.4bn in 2014-18F, spending an average of Bt5.7bn annually to improve efficiency of its refinery and marketing business over the next five years. Also included in the investment plan is the final investment for the third phase of its solar project (48MW) and the expansion of its biodiesel plant to 810k litres/day from 360k litres/day. Apart from these investments, the company is also looking for new investment opportunities with target investment of Bt5bn p.a. This implies potentially higher gearing in the near future from the current net D/E of only 0.3x.