Thai Oil

Thai Oil Plc (TOP) 

 

Results in line 

TOP posted a net profit of Bt2,094m, down 17% QoQ (but a turnaround from net loss of Bt1,504m in 2Q13). NPAT was in line with our expectation, but was 10% above the street. Stripping out extra items, core earnings dived by 93% QoQ and 85% YoY to Bt152m, as modeled.

Results highlights

The refining and aromatics performances were poor in 2Q14. Falling refining and PX-ULG95 margins weighed down overall market GIM—TOP reported market GIM of US$5.1/bbl, down $1/bbl QoQ. Also, both the CDU-3 unit and the TPX plant had scheduled shutdowns, mid-June through late July, so the refinery run rate dropped to 94% from 105% in 1Q14 and the aromatics run rate to 79% from 95%. The Lube base business performance also dipped a little. TLB achieved base oil production at 99% (versus 100% in 1Q14), while lube base margin declined slightly to $529/t from $541/t the previous quarter.  

In contrast, much bigger gains on FX, crack spread hedging and crude inventory outweighed the effect of a disappointing operation. The aggregate gain totaled almost Bt2bn (versus a loss of Bt100m in 1Q14).

Outlook

As the exceptional 2Q14 gains are unlikely to recur and maintenance shutdowns (the plants will be shut for a full month in July till the first week of August versus only two weeks in June) will cut utilization further, we anticipate a further bottom-line decline in 3Q14. Nonetheless, we are optimistic that TOP’s core number will improve, driven by a recovering aromatics performance. The PX-ULG95 margin averaged US$385/t QTD versus $220/t for 2Q14, which is likely to outweigh the effect of seasonally low GRM.  

What’s changed? 

We maintain our FY14 NPAT forecast of Bt7,476m unchanged. The 1H14 number represents 62% of our full-year projection (but only 51% of the street number). As such, we expect the consensus—which we believe is too optimistic over the PX spread outlook—to follow our lead. The prevailing PX margin looks unsustainable. We anticipate that it will fall back to $250-300/t in the near future, in which case, the 4Q14 performance would be hit.

Recommendation

Although the current valuation is not demanding (a YE14 PBV of ~1.1x), we advise standing aside. In the near future, diminished market expectations for GRM, PX margin and the bottom-line will cause interest in the stock to wane, we believe. Within Thai refining-cum-chemical space, we prefer IVL.