Thai Oil

Thai Oil Plc (TOP)

Refinery boosts 1Q14 profit
- We estimated TOP’s earnings to turnaround from a net loss of B14m in
4Q13 to a net profit of B2.3bn in 1Q14, thanks to the following
contributions. 1) A Fx gain of B420m would be booked due to stronger
THB, versus a massive Fx loss of B1.8bn in the previous quarter. 2)
Hedging gain would increase 54.6%qoq to B600m. Marketing GIM in
1Q14 is projected to increase 30.6%qoq to US$6.4/barrel following the
GRM that has leapt 155.6%qoq to US$4.6/barrel on seasonal effect.
Profit from the aromatics and lubricant businesses would plunge
41.9%qoq to US$1.8/barrel on average, mainly because Px-ULG95
spread has shrunk 38.6%qoq to US$273/ton and falling Px price would
cause LCM loss of B100m in 1Q14. However, accounting GIM would drop
20.3%qoq to US$5.1/barrel since Dubai crude oil price has decreased
US$4/barrel from 4Q13 and resulted in a stock loss of US$1.3/barrel,
versus a stock gain of US$1.5/barrel in 4Q13. Overall, 1Q14 profit would
make up 20.7% of our FY2014 forecast.
- Dreadful outlook in 2Q14 from aromatics
We revise down our profit forecast for 2014-2015, as shown in the table,
in order to reflect the worse-than-expected aromatics business. Px-
ULG95 spread has decreased since the beginning of the year and stood
at only US$165/ton in late March or a three-year low. Accordingly, we
cut the spread forecast in 2014 and 2015 from US$400/ton to
US$250/ton and US$300/ton, respectively. New Px supply of over 7
million tons/year in 2014 and 3-4 million tons/year in 2015 would still
not be able to meet with growing demands. Consequently, we project
2Q14 net profit to hit a year low because of 1) the aforementioned
narrower Px-ULG95 spread and 2) a 55-day major overhaul of CDU-3
distillation unit with a total capacity of 165,000 barrels/day, which would
make the utilization rate of the refinery and aromatics factory lower
from 105% and 93% to 80% and 60% in 1Q14.
- Downgrade to hold for dividend
Under the new forecast, 2014 fair value (DCF) is B56 (down from B68).
We downgrade our recommendation from buy to hold for dividend.
2014-2015 dividend yield can be expected at 3-4%p.a. (paying
semi-annually).