Refinery - Petrochemical

Refinery - Petrochemical sector

More positive signal in petrochemical business due to economic stimulus measure
We hold positive prospect toward the petrochemical business in 1-3
months ahead due to prices of petrochemical products that have
increased from the record low in June 2012. This is in line with the
recovery of economy which has boosted the demand for petrochemical
products. Moreover, the clearness after change of leaders in various
powerful countries (such as the US, China, Korea, and Japan) is likely to
bring about a launch of an economic stimulus measure in the near
future, especially in China which is the main petrochemical consumer in
the region who has showed a recovery signal once again. This reflects
from strong product prices that have risen continuously since 4Q12 up
until present. For the aromatics line, it’s the one with the most
outstanding growth in the petrochemical sector, especially main product
prices which are paraxylene (Px) and benzene (Bz) that have rebounded
to a substantially high level. For the benzene price, it has marched to hit
the new record high. In terms of the olefins price, it has increased
gradually since 4Q12 to 1Q13.

Revise up sector’s forecast and fair value to reflect better than expected spread
We raise our 2013-14 net profit forecast of the petrochemical sector to
reflect our revised-up assumption of price and average spread of both
aromatics and olefins products which had been underestimated. For the
real situation of product prices and spread, the recovery signal has been
seen constantly which would help support the prices and spread to
normal like before the public debt crisis in early-2012. In addition, we
revise up our profit (from solar power plant) assumption of BCP that has
earlier been underestimated. Accordingly, all abovementioned factors
have led to the sector’s tendency of 2013 profit growth from 2012 (as
illustrated in next page’s table).

Upgrade to “Overweight”… top picks are TOP and PTTG
We upgrade our recommendation from “Neutral” to “Overweight”.
According to outstanding tendency of aromatics business, continuous
recovery of olefins business, and the upcoming high season for the
refinery business in 1H13, top picks are TOP ([email protected]) which has
profit from aromatics business at 35% and refinery business at 65%, and
PTTGC ([email protected]) which has profit from olefins business at 50%,
aromatics business at 25%, and refinery business at 25%. In terms of
2013 PER at present, it stands at 10.18x and 10.03x respectively which
are lower than the current region’s average at 13.5x and the sector’s
average PER under normal situation at 14-15x.