Thai Oil

- Profit to make year’s peak in 2Q15  

We estimate 2Q15 net profit at B6.1bn or a growth of 36%qoq due to the following contributions: 1) there would be stock gain of around US$2.5/barrel or B2bn, 2) the aromatics business would revert from loss to slight profit of B21m as a result of increasing product to feed margin and higher utilization rate, 3) profit from the lubricating oil business would improve more than 20%qoq in a high season, and 4) there would be tax incentive from BOI for TOP’s environmental investment project. On the other hand, market GRM is projected to decrease 18.6%qoq and there can be Fx loss of around B1.2bn in this quarter. Overall, 1H15 net profit is estimated at B10.6bn, leaping 132.7%yoy and making up 100% of our forecast. 

 

- Up 2015 forecast to reflect better-than-expected GRM  

 

We revise up our FY2015 profit forecast by 43% to reflect an increase in GRM assumption from US$5.5/barrel to US$6.5/barrel after 1H15 market GRM beat our projection by rising to US$7.8/barrel. According to the new forecast, 2015 net profit would be as much as B14.5bn, versus B4bn net loss in 2014. However, for a short term, TOP’s profit in 2H15 would weaken from 1H15 for it is a low season of a refinery business and because of an impact from new supply from refineries in India. For the aromatics business, there is a good chance that product spreads, especially paraxylene, would drop from 1H15 because of new supply from China in late 3Q15.  

- New fair value is B56, still implying limited upside  

Under the new forecast, 2015 fair value (DCF) is B56 (previously B54). The current share price has risen in response to all positive factors until there is a limited upside now. We reiterate to hold TOP for its dividend or switch to IRPC, which has more than 30% upside and would step up to a new profit base after Phoenix project is complete in late 2015.