PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)
With the two overhangs of Montara and capital-raising lifting soon, PTTEP’s share price should start to reflect strong earnings growth on the back of rising volumes,
improved reserves and lower cost. Buy ahead of the completion of the fundraising. We shave FY12-13 EPS by 2.5-3.4% to reflect the Montara delay but raise FY14 by
16% for higher oil price and volume assumptions. We upgrade PTTEP from Neutral to Trading Buy as we expect a rerating, driven by near-term solid growth and the
removal of overhangs. Our DCF-based target price rises as we roll it forward, factor in EPS revisions and stop applying a 20% discount. 

Strong in Q3 2012, but better in 2013
While we expect solid 3Q12 earnings of THB18.8bn (+143% qoq, 68% yoy) due to higher volume and selling price, we expect 2013 to be much
better year for PTTEP on the back of 1) earnings growth of 16% from higher volume growth due to the start-up of the Montara oil field and higher
production for the Bongkot South and Vietnam projects, 2) an improved outlook for reserves and reserve replacement ratio (RRR) due to 17% potential
reserves upside from Cove’s asset in Mozambique.

Earnings revisions
We trim our core earnings forecasts by 2.5-3.7% for FY12-13 but raise FY14 by 16.3% to reflect 1) a 2-month delay in Montara’s start-up to Feb
2013 and 2) a US$10/bbl rise in our 2014 oil price forecast to US$100/bbl to reflect a higher long-term oil price assumption.
Distressed valuation undeserved PTTEP is trading at only 8.6x CY13 P/E, which is a historical low. We believe that it is unjustified and we
expect the stock to be rerated on the back of improved earnings growth arising from higher volume and ASP. The discount on its valuation should
narrow by 1Q13 as the overhangs will be lifted when the capital increase is completed and Montara starts operations. We upgrade the stock from
Neutral to Trading Buy given the 3-month upside of 14.6% compared to zero upside for our end-2012 SET target of 1,300.