PTT

PTT Plc
Favorable performance of subsidiaries and associates to lift 3Q12F profit
Gas sales volume up but margin down
Still a BUY with TP of Bt380/share

Strong recovery from weak 2Q12. PTT’s 3Q12F performance is looking stronger than
earlier believed, with net profit of Bt34.2bn (+302% QoQ and +58% YoY). The gain in
earnings QoQ comes from a favorable performance by PTTEP and inventory gain for
associated petrochemical and oil refining companies. PTT’s own operations slipped
QoQ upon a narrower margin for its GSP and oil & trading businesses. It also had to
book more losses on its NGV business due to the regulated price against a higher sales
volume. We see a marginal downside risk to our full-year forecast but maintain our
BUY and TP of Bt380/share. The company will announce earnings on 14 Nov.

PTTEP key earnings driver. PTTEP is positioned to be the main earnings contributor
in 3Q12F after it reported an impressive net profit growth of 127% QoQ and 135% YoY
from higher sales volume and the absence of huge non-recurring losses, largely
impairment loss on Montara, that dragged on earnings in 2Q12. PTT itself also booked
a non-recurring impairment for its pipeline business in Egypt in 2Q12 and the absence
of this will help to shove the QoQ comparison up.

Higher gas cost narrowed PTT’s margin. We expect gas sales volume to increase by
2.3% QoQ and 8.5% YoY to 4,600mmcfd in 3Q12F. Higher gas sales to IPPs backed the
QoQ increase after the shutdown of Yetagun and Yadana gas fields in 2Q12. The YoY
rise reflects higher demand for electricity. Sales volume of GSP should also increase by
4.5% QoQ and 20% YoY due to higher utilization. We expect the higher gas cost will
erode margin for these businesses and thus depress PTT’s profitability in 3Q12F despite
the adjustment of the netback formula for gas feedstock sold to PTTGC.

More losses from regulated energy price. The capping of NGV and LPG prices
continue to eat into PTT’s profit in 3Q12F. Management said the EBIT loss from its NGV
business leapt by Bt5bn in 3Q12F, vs. the Bt4.4bn loss in 2Q12. The cumulative loss for
9M12F has risen to Bt13bn, almost double Bt7.3bn loss in the same period of last year.
The current NGV price is being kept at only Bt10.5/kg against cost of >Bt14.5/kg, giving
PTT losses of more than Bt4bn/quarter. This will continue in 4Q12F and 2013F or until
the government resumes its policy to gradually increase the selling price to reflect the
actual cost, which is rising due to higher gas cost.

Still our top BUY in its sector. PTT’s share price continues to underperform peers
and the SET during the last eight months. We believe this arises out of the market’s
worry about PTTEP’s capital increase and PTT’s earnings outlook given the volatile oil
price. These overhangs have mostly been lifted, in our view, and we still prefer PTT to
other energy stocks. We also see the company as less vulnerable to oil price swings
than others, with relatively stable earnings from the pipeline transmission business.