PTT

PTT Plc

QUICK VIEW What's new? PTT’s board approved subscribing to not more than 403m new shares in PTTEP related to PTTEP’s recapitalization plan. The planned subscription aims to retain a 65.29% shareholding in PTTEP. Because it is a related-party transaction, PTT doesn’t get to vote on PTTEP’s share allocation plan or participate in book-building processes. The price that PTT pays will be similar to the prices to be paid by other existing shareholders.
Subscription plan as expected: Full financial support for PTTEP’s recap plan (the biggest in SET history) was expected. PTT group’s emphasis is now upstream, particularly gas assets. The revised PDP also put pressure on PTT group, as gas demand for power generation will rise sharply over the next 10 years. The group has a tough mission—securing significantly more gas for Thailand.
Funding isn’t an issue … PTTEP’s planned share allocation translates to a total amount to be paid by PTT of Bt61bn, based on an assumed PO price of Bt151/share. PTT ocould comfortably fund this investment through its ample cash on-hand, which stood at Bt136bn at end-March. Its net debt/equity ratio after the PO would have rise to just 0.58x from 0.48x—still far below its internal policy ceiling of 1.0x. 
…but target price trimmed slightly: We have trimmed our PTT DCF-based YE12 target price slightly to Bt375 from Bt384 in order to factor in the sizable cash injection to PTTEP. There might be scope for upside to our valuation if PTTEP were to post stronger production growth than we currently assume, post recapitalization. 
Action: We regard PTT’s planned share subscription as slightly negative in the short-term. It might generate market’s concerns about falling shareholder returns if PTTEP were to under-utilize the funds it raised from its cash call. Regardless, PTT remains our preferred pick among Thai O&G upstream stocks. The prospects for its gas throughput are good (strong gas sales profile). An expected rebound in chemical prices and spreads by late 3Q12 would pump up the performances of its GSP’s. More importantly, the likelihood of resumed NGV price increases could potentially catalyze the share price, as concerns about the implicit fuel price subsidy would ease.  Financial summary