PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

We revise down our 2Q14 net profit forecast again since PTTGC’s 2Q14
profit might drop more acutely by 0.8%qoq, depressing 1H14 profit.
However, an aggressive rebound of 39.4% is foreseen in 2H14. Buy.
- 2Q14 net profit to fall 0.8%qoq
We have received information from PTTGC regarding two factors that might
make 2Q14 earnings result lower than our previous forecast: 1) an
extraordinary expense for impairment of Vencortex (PTTGC holds 51%
stake) is estimated at B1.5bn, larger than previously projected, and 2)
market profit-to-feed margin (P2F) of aromatics products in 2Q14 would
plunge as much as 50.0%qoq to US$83/ton, lower than previously
expected. Accordingly, 2Q14 net profit would stand at only B6.2bn,
dropping 0.8%qoq. 1H14 profit is estimated at B12.5bn, down 22.8%yoy
and accounting for 36.8% of our FY2014 forecast.
- Cut 2014 forecast by 11.9%
We revise down our FY2014 earnings forecast to reflect non-recurring
factors in 1H14 i.e. the expense on Vencorex and the utilization rate of an
olefins factory from an unplanned shutdown in 1Q14. The new profit
forecast is decreased 11.9% from previously to B30bn or a decline of
9.8%yoy. However, 2H14 net profit would grow as much as 39.4% from
1H14 because 1) olefins and polymer factories would resume working at
their full capacity after the shutdown in 1H14 and 2) olefins spread would
widen since the recovering economy would help boost the demand.
Meanwhile, the aromatics and refinery businesses are likely to stay flat from
1H14.
- New 2014 fair value is B84. Buy on weakness
Under the new forecast, 2014 fair value is B84 (down from B87). We
reiterate to buy PTTGC because the share price has partially absorbed the
negative factors while P/E ratio is low at only 10x and average dividend
yield is as high as 5%p.a.