PTT Exploration and Production

PTT Exploration and Production Plc (PTTEP)

New capital increase plan to become clear, likely calming market’s concerns

The concerns toward capital increase are projected to descend after the
structure of the capital raising is believed to get clearer. Preliminary, the
structure of capital raising will resemble RO (Right Offering) that is granting
rights for existing shareholders to purchase additional shares equally for each
person (also for retail investors, institutions, and PTT). We’re convinced that
the capital increase will be raised to the same amount at B98bn via an issue
of up to 650 million new shares (if the capital increase price is assigned at
B150/share, the ratio of right offering will be 5 existing shares per 1 new
share). The assigning of capital increase price will be made by book building
(institutional investors assign the price based on demand and supply).
However, PTTEP’s process of capital increase is projected to complete in
2012. After the capital increase plan is approved by the company’s board this
week (26-28 September 2012), the extraordinary general meeting (EGM)
would be scheduled for late of October 2012 and the process of book building
to assign the price is projected to be held in the late of November 2012. The
proportion of capital increase will be announced after the price is assigned.

3Q12 profit projected to rise 138.8% QoQ… sales increase, without extraordinary expenses
The net profit in 3Q12 is projected at B18.5bn or an increase of 138.8% QoQ
due to the following reasons. 1) There’s no extraordinary expense recognition
like one in 2Q12 at B7bn (from Montara project’s impairment of assets and
FX loss). Moreover, extraordinary profit is projected to be recognized in 3Q12
which is from FX gain at around B1.5bn under an assumption that there’ll be
no further impairment for Montara project. 2) Sales has risen by 11.4% QoQ
to 239,000 bbls/day mainly as a result of recognizing South Bongkot project
for full quarter, with the production capacity of 320 million cubic feet/day. 3)
The average selling price of petroleum products is projected to increase by
2.8% QoQ due to the natural gas price that has ascended along with the oil
price (normally, the price of natural gas has 3-6 months of lag time) to the
average US$7.6/million BTU while the oil price still has stabilized in a high
level that is close to one in 2Q12. Overall, 9M12 net profit is projected to
stand at B44bn or 50.3% increasing from the same period of the prior year,
considered 88% of our FY2012 forecast. In case 3Q12 earnings result turns
out to be as projected, we’re likely to revise up our FY2012 forecast.

There’s still positive factor to be upside from current FV…
Upgrade to “BUY”
We revise up our recommendation from “HOLD” to “BUY” as concerns toward
unclearness of the capital increase that has pressured the share price earlier
is likely to vanish after the meeting of PTTEP’s board this week. Fair value,
using DCF, at end-2012 stands at B167.51/share (effects from capital
increase already included). However, we might revise up fair value because
the assumption of petroleum selling price is lower than the real price as the
oil price YTD stands at US$110/bbl which is beyond our assumption at
US$100/bbl and the natural gas price has leaped out of projection.