Bangchak Petroleum

Bangchak Petroleum Plc (BCP)

 

BCP is expected to turn back up to a net profit of Bt1.67bn in 1Q15 (to be announced on 11 May), after the huge loss in 4Q14 of Bt2.5bn off a stock loss of Bt4.4bn. We see its near-term outlook as promising with an increase in crude run after a major maintenance shutdown in 2014, full-year operations of 118MW in solar farms and no huge inventory loss. We BUY on an undemanding valuation and good profit outlook with an unchanged TP of Bt39. 

Record crude run in 1Q15F. The major maintenance in 2014 and improving domestic demand backed a higher crude run in 1Q15 to 108.6kbd from 102.5kbd in 4Q14 and 97.8kbd in 1Q14. Management says crude run in early 2Q15 remains high. This implies that the full-year crude run could be higher than the initial target of 100-105kbd.   

Better base GRM on lower fuel cost and good crack spread. BCP’s base GRM is expected to rise 29% QoQ and 70% YoY to US$10.87/bbl due to lower crude cost that has cut the fuel cost of its refinery. Average Dubai price has fallen by US$22/bbl from 4Q14 and the fuel used is ~3% of total crude intake, implying savings of US$0.7/bbl. In addition, crack spread on refined products improved QoQ, especially gasoline and fuel oil. We estimate stock and hedging losses at ~US$2.2/bbl. All told, we expect accounting GRM to rise to US$8.67/bbl in 1Q15 from -US$5.28/bbl, the best since 4Q13. 

Lower oil price could stimulate local demand. The fall in oil price improved refined oil product demand QoQ in 1Q15. This also benefited BCP’s marketing sales volume, which rose 1.1% QoQ and 9% YoY to 450mn liters/month. We expect marketing margin to edge up to Bt0.68/liter from Bt0.67/liter in 4Q14 and 1Q14, its 2015 target.  

Good profit from solar power business. Solar power profit contribution was good in 1Q15 due to favorable sun irradiation. Based on management guidance of a slight decline in power generation in 1Q15 we estimate the operating profit of this business to edge down by 2% QoQ but still surge nearly 70% YoY since the entire capacity of 118MW was in operation compared with 70MW in 1Q14. This remains in line with BCP’s target EBITDA contribution from solar power of Bt2.7bn in 2015.  

E&P generating profit. Although oil price remained low in 1Q15, BCP is expected to have gained profit from its E&P business via 81.4% holding in Nido Petroleum Limited. Nido upped its holding in the key producing asset, Galoc oil field to 55.88% in Feb 2015 and became the operator of the field.  

Buy maintained with TP of Bt39. We continue to have a positive view on BCP’s outlook, with more upside from better crude run and GRM than expected. Its earnings will be more resilient thanks to the solar power business. Its oil refining business will also generate a better profit after the major turnaround in 2014 which made a higher crude run possible. Crude run will continue to improve through 2018 as the efficiency improvement projects are gradually completed. In terms of valuation, the current P/E of 9.3x in 2015F looks undemanding compared with 13x for regional peers.