Thai Oil

Thai Oil Plc (TOP)

Profit turnaround in 3Q12F expected, but less than hoped. We expect TOP to
report net profit of Bt8.4bn in 3Q12F, a sharp turnaround from the net loss of Bt6.9bn
in 2Q12 and a surge of 235% YoY, in line with market consensus. Nonetheless, this falls
below the Bt9.1bn we expected earlier due to a change in claiming BoI tax privileges.
Behind the sharp improvement is stock gain and the reversal of inventory write-down
booked in 2Q12. Apart from this, market GRM was favorable, driven by gasoline and
diesel. We see upside potential to our 2012 forecast and maintain BUY with TP of Bt72.

Favorable GRM is the key driver for market GIM. TOP’s market GRM is expected to
improve from US$4.4/bbl in 2Q12 to US$4.9/bbl in 3Q12F, driven by strong crack spread
for gasoline and diesel. This was due to several unplanned shutdowns of regional oil
refineries during the quarter. Apart from that, TOP’s domestic sales portion increased
slightly from 84% in 2Q12 to 88% as it had to make up for the production lost from BCP.
Product spread of aromatics and lube base were slightly lower QoQ due to low
contract price and seasonal effect. Hence, we estimate its market GIM to increase
slightly from US$7.2/bbl in 2Q12 to US$7.4/bbl. TOP will also book a stock gain of
US$5/bbl and the reversal of a part of the Bt2.4bn inventory write-down in 2Q12.

Operating rate remained at full to minimize cost. TOP continues its strategy to
maximize utilization of every production unit at full to minimize unit cost. We expect
cash cost to remain unchanged at US$1.7/bbl, which suggests it will deliver EBITDA of
at least US$10.7/bbl in 3Q12F, vs. a negative EBITDA of US$5.1/bbl in 2Q12.

Change in claiming BoI tax incentive. TOP still has at least Bt4.2bn in BoI tax benefit
left on its investment in reducing carbon emissions. Previously, management planned
to claim the entire amount as soon as possible to gain the benefit of time value,
although the majority of the investment has not yet been made. It now appears the
government may allow tax claims for each period only equal to the actual investment.
To be conservative, management decided to proactively claim just the amount actually
invested. We estimate it will be able to claim tax rebate of only Bt400mn from the
total tax payable of more than Bt2bn in 3Q12F and it is this that has led us to adjust
our 3Q12F estimate downwards.

Upside to 2012F forecast. With earnings in 3Q12 expected strong plus the better
outlook for operating performance in 4Q12, we see potential upside to our earnings
estimate for 2012F if oil prices hover at current levels through to the end of the year.
Our BUY rating is reaffirmed with TP of Bt72. TOP is our preferred oil refinery in
Thailand given its lowest cash cost and highest complexity.