PTT Exploration & Production

Maintain NEUTRAL. Following a conference call last week, we are now more confident that PTTEP could undertake an equity increase. On top of financing M&A as part of its aggressive expansion plan, PTTEP revealed that funds raised would also be used to boost production of its legacy assets and enhance its financial strength ahead of a potential economic recession. We believe a fund-raising exercise could take place over the next 6-12 months and lead to a share price overhang as well as a 15% EPS dilution. We maintain our NEUTRAL call and target price of THB179, based on a 15% discount to our DCF valuation to reflect higher operating risks and the potential dilution. Key de-rating catalysts are an oil price decline, lower production and a capital increase.