Bangchak Petroleum

Bangchak Petroleum Plc (BCP)  

       

In line with estimates

BCP reported a 2Q15 net profit of Bt2,794m, up 122% YoY and 169% QoQ in 2Q15. Stripping out an inventory gain of Bt457m, an advance on oil hedging of Bt47m, and an FX loss of Bt34m, 2Q15 core profit will be Bt2,324m, up 802% YoY but down 13% QoQ. The result was aligned with our forecast and that of the consensus. 

Results highlights

The key reason behind the bottom-line growth was the inventory gain. The main drivers for the YoY core earnings growth should be: 1) a greater crude run (up 131% YoY to 112KBD), 2) a fatter market GRM (up 113% YoY to US$10.4/bbl), 3) a higher marketing sales volume (up 16% YoY to 1,404m liters), and 4) bigger contribution from its solar power business—EBITDA of Bt735m in 2Q15, up 8% YoY. 

Meanwhile, the key factors behind the QoQ core profit contraction were: 1) lower marketing margin (down 8% QoQ to Bt0.69/liter), 2) higher SG&A expenses—SG&A/sales ratio rose to 3.2% from 2.7% in 1Q15, and, 3) higher effective tax rate—to 20.2% from 3.3% in 1Q15. It should be noted that the crude run and marketing sales volume increased 3% and 4% QoQ, respectively. Despite a QoQ weaker Singapore benchmark GRM, the firm’s market GRM inched up 2% QoQ, driven by the lower fuel oil yield (to 12% from 16% in 1Q15).

Outlook

The Singapore benchmark GRM in 3Q15-to-date has dropped 25% QoQ to US$6.2/bbl, as spring refinery maintenance season has ended. The average diesel crack spread in 3Q15-to-date has weakened to US$8.9/bbl from US$13.7/bbl in 2Q15. This suggests that BCP’s 3Q15 market GRM is likely to shrink around US$3/bbl QoQ from its 2Q15 number. In addition, the third quarter is normally low season for the marketing business. As such, the firm’s 3Q15 core earnings are expected to weaken QoQ. For the YoY term, BCP’s 3Q15 core profit is expected to creep up, driven by its greater crude run and a larger contribution from its solar power business. 

What’s changed?

Even though 6M15 net profit represents 54% of our FY15 net profit forecast of Bt7,109m, we maintain our forecast unchanged as we

expect BCP’s 2H15 earnings to weaken HoH.

Recommendation

As BCP’s 2H15 earnings outlook is weakening, to be brought about by lower market GRM, we therefore think that there will be no obvious catalyst driving the share price. But, the stable contribution from its solar power business, together with its cheap valuation—a YE15 PER of 7.3x, discount to its long-term average of 10.4x with a high dividend yield of 6.1% (against an average of 3.0% for other Thai refining firms)—should support significant downside risk to the share price.