Thai Oil (TOP)

Thai Oil Plc (TOP)

2Q12 suffers massive net loss of B6.9bn, larger than expected
TOP announced 2Q12’s earnings with a net loss of B6.9bn, reversing from a net profit of B7.2bn in 1Q12 and larger than our previous projection for a loss
of B5.2bn, due mainly to underestimation of stock loss and stock valuation using lower of cost or market (LCM). In 2Q12 TOP faced a stock loss and LCM
loss of as large as US$10.4/bbl from closing price of Dubai crude oil which has decreased from US$28/bbl at end-1Q12 while other items are still close
to our projections. Apart from the abovementioned stock loss, the net loss has also resulted from 2 following factors. 1) Earnings from aromatics
business (TPX) has fallen by 22%qoq from a contraction of spread of core product Px-ULG95 by 21%qoq to US$380/ton on average, making overall
product to feed margin of aromatics decrease by 12%qoq on average to US$122/ton, while utilization rate remained close to that of the prior quarter
at 82%. 2) The company booked a FX loss of B578m in 2Q12 from 0.98%qoq depreciation of Thai Baht compared with FX gain in 1Q12. However, in 2Q12
there were businesses of TOP that have thrived from the previous quarter,which are lube base oil (TLB) and power plant (IPT and TP) that have shown
the profit growth of 4%qoq and 122%qoq respectively. Overall, net profit in 1H12 stood at B323m, falling 69.6% from the same period last year.

Maintain forecast. High chance for stock gain in H2 2012
Preliminarily, we still maintain our net profit forecast for FY2012 although 1H12’s profit comprises only 4% of our FY2012’s earnings forecast. It is
because there is a high chance that the company would reverse to book stock gain in 2H12 from oil price which tends to rise during the period after hitting
a low in 2Q12. This has been reflected by Dubai crude oil price which has hiked by 14% from end-2Q12 to US$105.63/bbl. Moreover, norm earnings in
2H12 would be recovering as well after passing the year’s low in 2Q12. Market GRM is anticipated to stabilize at a high level of US$4-5/bbl (under a
normal situation; but if there is a hurricane in the Gulf of Mexico that leads to a stop of oil production, the oil price and GRM would soar further) on regional
demands which are believed to increase as a result of the economic recovery and an approach of Ramadan in Indonesia in which demand for gasoline
usually rises. Moreover, August-October of every year is the period when many refineries in Asia, America, and Europe undertake a maintenance
shutdown to prepare for an operation in the coming winter (in late 4Q12). Accordingly, some of the supply would disappear from the market, thus
pushing up price of finished oil. Similarly, for aromatics product, spread of paraxylene (Px-ULG95) would recover to stand at US$400-450/ton in 3Q12
from raw material restocking. Furthermore, 3Q12 is a high season for production to prepare for the year-end festive season, so it would help recover the
aromatics business.

Buy. High chance to outperform in next 3 months

Fair value at end-2012, using DCF, is B70.16/share.We maintain our recommendation to buy because the industry is believed to recover again in H2 2012.