PTT Exploration and Production
Play
Solid 3Q12 results support our positive view about its earnings outlook, thanks to high sustained oil and gas prices and rising volume. As the overhang due to a capital increase and Montara will soon be lifted, its share price should start to re-rate
9M12 core profit was above estimates at 80% of our full-year forecast but
we maintain our figures as we expect a slowdown in core earnings from
shutdowns due to maintenance.
Maintain Trading Buy and DCF-based target price (WACC 11%) given
short-term earnings momentum.
Solid as expected
3Q12 core net profit was THB17.9bn, missing consensus by 5.8% and our
forecast by 4.8% due mainly to the slightly lower ASP of US$64/boe vs.
our and market estimates of US$65/boe. The smaller net profit
was caused by lower tax benefit of US$63m. Other key factors: 1) 16%
yoy higher ASP of US$64/boe on rising oil and gas prices; 2) volume
rising 11% qoq and 10% yoy to 292kboed with Bongkot South’s full
production of 334mmcfd and Vietnam 16-1; 3) lower cash cost of
US$30.7/boe, down 20% qoq due to lower operating cost and exploration
expense; and 4) 41% lower tax expense qoq due to tax benefit
adjustments.
Improving strategy
It is now clear that PTTEP has shifted its strategy, boosting reserves and
production via two approaches: 1)organic growth from the development
of existing assets in ASEAN countries, and 2) inorganic growth from the
acquisition of oil & gas assets with small stakes in large reserves. We
believe this will lower operating risk and improve reserves, which has been
a key weakness for PTTEP.
Valuation
PTTEP is trading at 8.6x forward P/E, a historical low. With the removal of
the share price overhang by 1Q13, it should start to re-rate to reflect its
strong earnings outlook. We believe our target price is achievable, driven
by continued growth and a more prudent overseas strategy.
