PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

Petrochemical business to recover in next 1-3 months
According to the analyst meeting yesterday, PTTGC’s management held a
positive prospect toward the petrochemical business in the next 1-3 months,
foreseeing an increase in product price and spread particularly for the
aromatics line which will benefit from increasing commercial runs of new PTA
plants (Px is raw material) as well as increasing demands for downstream
product, polyester fiber, on a high season (winter). At the same time, cotton
price has begun to increase from an arrival of a dry season in the US, likely
boosting Px price onto an uptrend like Bz that has benefited from decreasing
gas price in the US. After a discovery of a massive shale gas resource in the
US, olefins operators have switched to use gas as a raw material instead,
likely making supply of Pygas, a product from olefins production with
Naphtha as a raw material, decrease, consequently depressing overall Bz
supply in the market and making Bz price increase continuously. For olefins
line petrochemical business, it is now waiting only for a rebound of demand
which would grow average by 4-5% a year. In the short term, the business
will benefit from a year-end festive season and Chinese New Year that will
lead to product restocking. However, although the management has not
given a clear direction of the business outlook in 2013, improving economic
figures and the leader change of China will boost the Chinese economy to
recover in the near future. This will benefit petrochemical business, making
product price and spread increase as China is the world’s major
petrochemical consumer.

Up 2012’s forecast…4Q12’s profit to grow 10%qoq
We revise up our profit forecast for 2012 by 7.6% to reflect a likely-betterthan-
expected aromatics spread in 4Q12. Especially, Bz spread has surged
significantly due to a tight supply as well as a benefit from an import of
cheaper condensate from a new source. At present, spreads of Pxcondensate
and Bz-condensate stand averagely at US$600-400/ton. At the
same time, another positive factor to boost norm profit in 4Q12 from the
prior quarter is the olefins line petrochemical business which is projected to
have higher utilization rate, particularly for HDPE plastic after a 1-month
maintenance shutdown in 2Q12. Moreover, for the refinery business, GRM is
anticipated to stand around US$6/bbl close to that of 3Q12 due to rising
regional demands for gasoline and an arrival of winter in which demands for
middle distillate, both jet fuel and diesel, would rally again. Moreover, PTTGC
has received forward orders until December 2012, so norm profit in 4Q12
would grow by 10%qoq.

New 2013’s fair value is B73.39m. Upgrade to BUY
Under the new forecast, we derive 2012’s fair value, DCF, at B73.39/share
(from B72.50). Therefore, we upgrade our recommendation from Hold to Buy
as profit in 4Q12 would grow again. Moreover, the current share price has
limited downside, while current PER is low at only 8.59x, lower than the
sector’s average of 10-12x.