Bangchak Petroleum

Falling oil price aside; outlook still improving BUY

Bangchak Petroleum Plc (BCP)

Overlook 4Q14 to better year in 2015F. Looking past the continued drop in oil price

in 4Q14 – bad news for all oil refineries in Thailand - investors can expect a better year

in 2015. We expect BCP to continue to stand out from peers on improving core

earnings, driven by higher crude run, better base GRM from more optimal crude run

and a full year of operations of the full 118MW capacity for its solar farm. Current

valuation looks undemanding at 9.5x P/E (2015) vs. >10x for regional peers. We

maintain our BUY rating with TP of Bt44/share, although cutting 2014 forecast by 12%.

3Q14 profit worse than expected. The net profit of Bt381mn (EPS=Bt0.28) was

below SCBS’ estimate but better than the market’s. Operating performance was

generally in line, hit by a huge inventory loss of Bt1.4bn. This offset better base GRM

(up to US$6.94/bbl from US$4.89/bbl in 2Q14) brought by higher crude run (+100% QoQ)

after the major turnaround in 2Q14. Also supporting 3Q14 earnings was the rise to full

operations of its solar farm (118MW), for which EBITDA expanded 4% QoQ and 96% YoY.

Its marketing business also did well with high 73.9% YoY growth in EBITDA due to a

good marketing margin for its retail business; QoQ this slid 8.7%.

4Q14F softened by lower oil price. Despite the weakening crude oil price,

management remains optimistic about earnings, with an unchanged 2014 target

EBITDA of >Bt10bn. This implies EBITDA for 4Q14F of Bt3.6bn, above the average EBITDA

(excluding impact from inventory gain/loss) of Bt2.3bn/quarter in 9M14 on average

crude run of 81.1kbd. If we assume crude run rises to 100kbd from 97kbd and

contribution from other businesses is steady, EBITDA will come in at ~Bt2.7bn in 4Q14F.

Acquiring Nido completed. BCP completed the acquisition of 81.4% interest in Nido

Petroleum Limited in early Oct via a tender offer. It began consolidation in late 3Q14,

with a 65% stake at the end of the quarter with net profit of Bt44mn, mainly from FX

gain of Bt87mn, while EBITDA remained in the red at Bt59mn. BCP plans to use Nido to

participate in the 21st round of bids for petroleum concessions, with a win helping to

cement its long-term supply of local crude.

Cut 2014F by 12% to reflect the continued inventory loss in 4Q14F brought by the

continued decline in crude oil prices.

Still BUY with attractive return on TP of Bt44. We remain positive on its earnings

outlook, which now looks more sustainable, 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 9.5x in 2015F looks undemanding compared with

>10x for regional peers.