PTT

PTT Plc

Investment thesis: While we are negatively biased on its short-term outlook (a weak 4Q11 and only a mild recovery in 1Q12), PTT remains one of our two preferred picks within Thai Energy space. Its scope for dividend upside, its strong FY12 profit growth profile and its bottom-line’s resilience to oil price drops (MS projects an oil price slump in 1H12) make the firm more attractive than any pure play. PTT trades at an FY12 PER of 8.9x, a 24% discount to the Asian average and close to its long-term mean.
Worst 4Q11 earnings behind us: We maintain our 4Q11 profit forecast at Bt15,762m (due to be announced on Feb 17), down by 27% QoQ and 28% YoY. The weakest expected result of the year was squeezed by diminished gains on product inventories, the reversal of an FX gain in 3Q11 to a loss, weaker performances among refining and chemical units and, most prominently, a Bt5.5bn write off on an investment. PTT’s operational performance would also have retreated, as the flooding hit gas throughput and chemical-related GSP product prices dropped. Gas sales averaged 3,919mmcfd in 4Q11, down 8% QoQ. Also, the twin effects of falling product prices and higher gas costs would have dented GSP performances.
Scope for dividend upside … As the govt has called for higher dividend payouts from state-owned enterprises, we think PTT is very likely to increase its payout for FY11, given its strong balance sheet, huge reserve of cash and its expected record profit for that year. We assume that the payout will rise to 40% (from 35% for FY10), so a full-year dividend of Bt14.50. That implies Bt8.50 for 2H11 and an annualized dividend yield of 5%.     
…and a modest recovery expected in 1Q12: Based on recent discussions with PTT, we feel that the absence of exceptional one-off expenses and the forecast strong bounces in refining and chemical units’ performances will boost the 1Q12 bottom-line. But we see only a mild pick-up in the firm’s core gas performance. Although gas throughput would have recovered as the flooding receded, GSP performances look unexciting—a 30-day warranty inspection of the sixth GSP will reduce aggregate production at PTT’s GSP units, in our view.
Buoyant FY12 outlook: Despite the bearish crude outlook for 1H12, we remain positive on PTT’s bottom-line growth profile for FY12 (up 10% YoY), led by volume expansion, a lower corporate tax rate and a higher NGV price. Gas throughput should rise 6% YoY to 4,400mmcfd (and further to 4,800mmcfd in FY13 with the start-ups of new gas-fired IPP plants). GSP production will touch a record high of 6.3mt, up 10% YoY. Even if the protests over the recent NGV price hike were to force the govt to freeze the price, the downside risk to our FY12 forecast would be only 3%. 
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