Thai Oil Plc

Thai Oil Plc (TOP)

March to generate both organic and inorganic growth
At the analyst meeting yesterday, TOP revealed its future plan which will
focus on generating both organic and inorganic growth in the businesses
of its expertise which are refinery, aromatics, and lubricating oil. In
terms of organic growth, the company would emphasize on improving
efficiency of refineries and maximizing benefit from its refineries and
factories (debottleneck) which will gradually finish since 2012 onward,
starting from Px Max project which will develop TL to Px (already
starting a commercial run in 4Q12). In terms of inorganic growth, the
company has planned to expand its investment in 3 countries,
Indonesia, Vietnam, and especially Burma which has growth potential for
the refinery business from a shortage of domestic finished oil supply. In
the beginning, the investment would be M&A to distribute risk, while the
investment on a new refinery will still not happen because the current
supply is 20% larger than demand. Moreover, a construction of a new
refinery has a high cost (unless it is large enough to create economy of
scale).

Refinery and aromatics businesses remain bright in 4Q12 – 2013
TOP’s outlook toward GRM in the next 1-3 months is in line with our
previous projection. GRM would be supported by an arrival of winter and
low finished oil reserves in many countries. In terms of demand and
supply, in 2013 there will be additional supply of 1.3 million bbls/day in
the market, though from a gradual production, while refineries in Japan
and China with total capacity of 230,000 bbls/day would close
permanently. Consequently, there would not be a pressure on demand
which is still growing average by 800,000-900,000 bbls/day and GRM
would be supported to stand at US$4-5/bbl. Likewise, for the aromatics
business, there would be a support from a new PTA plant (Px is raw
material) which will gradually run a commercial production and a delay
in commercial run of a new Px plant, which will result in a tight situation
between demand and supply of Px. Moreover, for Bz, there would be a
continued positive factor from shale gas in the US as increasing gas
supply would influence petrochemical entrepreneurs to turn to use gas
as raw material, making Bz supply decrease and product spread widen.
Moreover, a change of China’s leader might lead to imposition of an
economic stimulus package, which would as a result boost overall
petrochemical demand. Accordingly, it is projected that China would
increasingly import Px following the average growth of 6% a year of
polyester.

Buy. 2013’s fair value is B80.12
2013’s fair value, using DCF, is B80.12. We reiterate our BUY
recommendation from the refinery business that is projected to remain
bright in the next 3-5 months from GRM that would enter a high season.