Thai Oil

Thai Oil Plc (TOP)

Results undershot expectations: TOP posted a 2Q12 loss of Bt6,815m, a reversal from profits of Bt7,212m and Bt3,245m in 1Q12 and 2Q11, respectively. The result was 10% below our estimate and 24% lower than the Bloomberg consensus, due to a heavier stock loss and LCM than modeled—the firm posted a total of US$13.9/bbl; our assumption was $12.8/bbl.
Results highlights: The sharp fall in oil prices resulted in a huge stock loss and LCM realization. TOP reported a stock loss of US$10.9/bbl (versus a gain of $5.2/bbl for 1Q12) and LCM of $3/bbl. Stripping out extra items, core earnings came to Bt2,051m, up a marked 42% QoQ. The core number was also slightly above our expectation, due to a higher-than-anticipated market GRM—the firm posted $4.6/bbl; we assumed $4.5/bbl. The QoQ operational improvement was attributable to a fatter market GIM of $7.2/bbl versus $6.7/bbl in 1Q12. Stronger market GRM of $4.6/bbl (against 1Q12’s $4/bbl) and a bounce in lube base margin from $500/t in 1Q12 to $621/t outweighed the effect of an aromatics margin drop from $482/t in 1Q12 to $380/t.
Outlook: As Morgan Stanley expects oil prices to be stable through to YE12, the 3Q12 outlook is for a QoQ flip. Reported LCM of US$3/bbl will reverse and crude inventory will post a marked gain. Operationally, a lower crude premium will strengthen TOP’s market GRM—management guides that its crude premium has already normalized at $2/bbl QTD versus $3/bbl a quarter earlier. Conservatively pegged to a Brent price of $100/bbl, we project a 3Q12 net profit of Bt6,247m.
What’s changed? We maintain our FY12 profit forecast at Bt10,577m. 1H12 earnings represent only 4% of our full-year number, but our modeling indicates that 2Q12 was the nadir of the year; a reversal of LCM and stock gains will make for a spectacular 3Q12 bottom-line bounce, followed by somewhat weaker 4Q12 earnings.
Recommendation: In our view, TOP’s recent outperformance was prompted by the oil price spike and expectations that the firm will post the strongest 3Q12 earnings recovery in Thai refining-cum-chemical space, led by reversal of LCM. Regardless, we remain bearish about the fundamental outlook for refining—a slew of new industry capacity will start operating soon and there is no sign of a revival in petroleum product demand yet. We still like PTTGC best.