PTT Global Chemical

PTT Global Chemical Plc (PTTGC)
 

Investment thesis: We think that anticipation of a
declining oil price, a seasonal softening of chemical
spreads and negligible scope for earnings upside in
2Q12 may cap PTTGC’s share price performance in the
near-term. However, the improved outlook for chemical
margins later this year together with the prospects for
synergistic benefits and growth to be enabled by future
investments will make for long-term value creation,
earnings upside and prompt a share price re-rating.
1Q12 earnings down YoY but up sharply QoQ: We
expect PTTGC to post a 1Q12 net profit of Bt9,546m,
down 14% YoY but up 139% QoQ. The key factors
behind the expected YoY earnings contraction were: 1)
weaker GRM, 2) narrower aromatics and olefins
spreads and 3) lower inventory gains. The key drivers of
the QoQ earnings growth were: 1) increased sales
volume at PTTCH facilities, 2) a fatter GRM, 3) higher
aromatics and olefins margins and 4) a greater
inventory gain.
Absence of inventory gain to put downward
pressure to 2Q12 earnings: As MS forecasts an oil
price downtrend, PTTGC’s 2Q12 earnings are expected
to drop QoQ, due to the absence of inventory gain
(perhaps an inventory loss. However, expected
increases in sales volume by both PTTAR and PTTCH
facilities should mitigate the negative impact on core
earnings from softer chemical spreads in 2Q12.
2H12 earnings to outpace 1H12: PTTGC’s 2H12
earnings are expected to rise HoH, driven by higher
chemical spreads and greater sales volume (due to
fewer planned shutdowns). Chemical prices and
spreads should rebound in 2H12, driven up by high
seasonal demand coupled with a global economic
recovery.
Significant profit upgrades unlikely in the near-term,
but possible in 2H12: We don’t expect any major
earnings forecast upgrades in the near-term, as
chemical prices and spreads will remain low during the
next few months. But a rebound in chemical prices and
spreads later this year would prompt a consensus
earnings projection upgrade in 2H12.
Outlook
1Q12 earnings down YoY but up sharply QoQ: We expect PTTGC to post a 1Q12 net
profit of Bt9,546m, down 14% YoY but up 139% QoQ. The key factors behind the
expected YoY earnings contraction were: 1) weaker GRM, 2) narrower aromatics and
olefins spreads and 3) lower inventory gains. The key drivers of the QoQ earnings growth
were: 1) increased sales volume at PTTCH facilities, 2) a fatter GRM, 3) higher aromatics
and olefins margins and 4) a greater inventory gain.
Rising volume and margins to drive QoQ olefins business earnings growth in
1Q12: Even though most spreads in the olefins chain weakened YoY in 1Q12, they
rebounded QoQ, driven by high seasonal demand and supply tightness brought about by
maintenance shutdowns among several plants in the region. With regard to PTTCH, the
Ethylene-Ethane spread is expected to post an increase of 1% YoY and a 29% QoQ to
US$753/tonne, while the Propylene-Ethane spread should report a decline of 25% YoY
and 3% QoQ to $783/tonne. Moreover, the HDPE-Ethane spread is estimated to have
strengthened by 2% YoY and 5% QoQ to $897/tonne, while the LLDPE-Ethane spread is
likely to have weakened 13% YoY but increased 9% QoQ to $807/tonne. The LDPEEthane
spread should report a drop of 29% YoY and 5% QoQ to $885/tonne, while the
MEG spread should post a fall of 5% YoY and 35% QoQ to $449/t.
Despite a 49-day planned shutdown at the I4-2 facility during the period, we estimate that
the mean utilization rate of PTTCH’s olefins facilities increased to 87% from 84% in 1Q11
and 77% in 4Q11, due to increased gas feedstock supplied from PTT’s GSPs.