PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

- 1Q14 profit falls as expected
PTTGC's 1Q14 net profit was reported at B6.3bn, plunging 15.2%qoq as
expected due to the following factors: 1) Olefin factories underwent planned and
unplanned shutdown, thus lowering the utilization rate from 90% in 4Q13 to
77%. 2) Px-Condensate spread shrunk by 22.9%qoq to US$387/ton as a result
of Px oversupply. 3) US$0.69/barrel stock loss (totaling B575m) was booked in
1Q14 (versus US$1.1/barrel stock gain in 4Q13). However, there were still
positive factors in 1Q14: 1) Gross refinery margin (GRM) increased remarkably
by 30.9%qoq to US$4.48/barrel. 2) PE resin spread widened by 2.3%qoq. 3)
Thanks to Baht appreciation, B602m Fx gain was booked. Overall, 1Q14 net
profit made up 17.4% of FY2014 earnings result.
- Strong profit surge foreseen in 2Q14
We revise down PTTGC's FY2015 earnings results to reflect that aromatics
business has been weaker than expected. Px-Condensate spread has declined
since the beginning of 2014, making a quarterly record low of 2014 and the
three-year lowest at US$250/ton in late-March 2014. Thus, we revise down our
Px-Condensate spread projection from US$550/ton to US$350/ton in 2014 and
US$400/ton in 2015. New supply (7 million tons/year in 2014, 3-4 million
tons/year in 2015) is not likely to be negated by growing demand for Px.
However, we still project 1Q14 profit to mark a quarterly record low of 2014. A
strong profit rebound is foreseen in 2Q14 owing to the following contributions:
1) After the shutdown in 1Q14, the olefins factories would resume their
operation, which is likely increase the utilization rate to 90%. 2) GSP#5 has
been able to raise its capacity from 50% to 100% since early April 2014,
resulting in larger gas feedstock to PTTGC, thus benefiting the spread. 3) Olefins
spread would remain in an uptrend, thanks to growing demands along with the
world economic recovery. 4) GRM would remain high on seasonal effect.
- Time to accumulate
We revise down FY2014 fair value (DCF) from B91.78 to B87. We reiterate to
buy. The previous slump of the share price has possibly reflected the negative
factors already. FY2014 P/E ratio is only 8.8x, versus the regional average of
13x. Dividend yield is as high as 5% p.a.