Bangchak Petroleum

The Bangchak Petroleum Plc (BCP)

Refinery is key driver. Solar will play more important role
At the analyst meeting yesterday, BCP’s management revealed an investment
strategy for the next 4 years with a goal to boost profit to B13bn (EBITDA)
within 2013 (from B7bn at present). Key driver is still a refinery business which
accounts for 60% of the company’s profit. By 2013, BCP would commence 3E+
project (Energy, Efficiency & Environment) with the investment of B6bn for
increasing efficiency of refineries and raising capacity of the fractionating tower
that had a fire accident to 100,000 bbls/day from 80,000 bbls/day (the
insurance company will be responsible for the construction expense of a new
fractionating tower as the existing tower is old which raises a worry about new
problem in the future and it has only B10m book value left). Consequently,
total production capacity of BCP would increase to 140,000 bbls/day.
Preliminarily, the 3E+ project will make GRM increase by US$2-2.5/bbl.
However, the business that will play a more important role for BCP is solar
power. From the total solar power generating capacity of 170 MW in hand, the
company’s profit from power plant business will mount to 21% of total profit
from 6% in the present. In addition, the constructions of the Phase II project of
50 MW and the Phase III project of 75 MW will finish in 1Q13 and 2014
respectively. However, the money that will be used in the above-mentioned
investment projects in the next 4 years (2013-2016) at B24bn in total will
come mainly from operating cash flow and bond issuance without a capital
increase (current debt to equity ratio is 0.73x, still lower than the sector’s
average of 1x). For the construction of a new refinery, it is now under a
feasibility study in the long term of next 5-10 years.

Q4 2012’s norm profit to grow qoq
We project norm profit to increase from 3Q12 to B600-700m in 4Q12 as the
major refining unit of BCP (with capacity of 80,000 bbls/day) which had been
damaged at the fire accident would resume a normal commercial run in late
October 2012, making utilization rate in 4Q12 surge by 125%qoq to 90,000
bbls/day. Meanwhile, GRM is projected to decrease from US$14/bbl to a
normal level of US$7-8/bbl as a running of refineries at a full capacity will
remove an advantage of crude oil source choosing. Moreover, BCP will
gradually book insurance claims for property damage and business
interruption in 4Q12. Preliminarily, the expense on the new fractionating
tower is estimated at around B800m, while the business interruption
compensation (BI) is estimated at B400m in total for 40 days. However,
under a conservative method, we will not include the compensation claims in
our forecast. Nevertheless, if all the compensation claims are booked in
2013, profit in the year will increase by 30% from the current forecast to
B5.1bn, while fair value will increase by B1.28/share.

Buy, waiting for benefit in next 1-3 months
2013’s fair value, using DCF, is B34.02/share. We reiterate our buy
recommendation, believing that the share price would outperform the market
again in the next 1-3 months due to supports from GRM uptrend during a
high season of winter in the year end. Moreover, PER in 2012-2013 is
substantially lower than the sector’s average of 10-12x.