PTT

PTT Plc

Investment thesis: We attended PTT group’s analyst meeting yesterday. In all, the feedback was neutral. The discussions mostly concerned the impact of govt policy on the firm’s business outlook, particularly the moratorium on NGV price rises and the country’s oil reserves. PTT guides that if a price cap were to persist, the impact would be only limited. With no sign of any global demand revival or economic recovery, PTT remains one of our two preferred picks within Thai Energy space at this moment.

Limited loss on NGV price cap: The govt last week extended the NGV price cap till YE12, PTT insists that the impact on its bottom line will be limited. The firm has halted its NGV station buildout, so NGV sales volume will be flat from here. Management guides that the loss on NGV sales won’t exceed the 2Q12 level. Based on the aforesaid guidance, we have raised our PTT FY12 NGV loss projection to Bt17bn (from Bt12bn previously). However, management is optimistic that the govt will review NGV prices again after the censure debate ends in early Sept; and insists that energy price deregulation will go ahead before the establishment of the AEC in 2015.    
Further impairment losses unlikely: PTT said that the 2Q12 impairment of Bt4bn on its investment in EMG was due to the termination of the Gas Supply and Purchase Agreement with its gas offtaker, EGAS. Although the firm’s remaining book value in EMG is Bt3.5bn, management claims that a further impairment loss is unlikely. The Egyptian political situation has improved—the new govt will act on the dispute. If it can be sorted out, PTT’s 3Q12 outlook would improve (we earlier assumed a further EMG write-off in 3Q12).  

Increased commercial oil reserves still on hold: The firm discusses commercial oil reserves with the govt, but pointed out that the govt request for increases among Thai refineries in late June (from 5% currently to 6%) has yet to be implemented. Management said that the govt is responsible for Thailand’s strategic petroleum reserves (SPR), similarly to other countries, and the govt also needs to build oil depots for its SPR.

No shareholding limit in PTTEP: PTT expressed a strong commitment to increasing its shareholding beyond the current 65.29% stake under the worst-case scenario where there are unsubscribed PTTEP shares. If PTT’s share-holding were to rise to 66.67%, PTTEP would fall under tougher state-owned enterprise rules and oversight. Management said it would concentrate first on commercial issues and sort out technical matters later