PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

Q4 2012 net profit projected to fall 27% QoQ due mainly to Montara asset impairment
PTTEP’s 4Q12 net profit is projected to stand at B12.8bn or 27% QoQ decrease
due to an extraordinary expense which is B3bn asset impairment of Montara
project in Australia. This is a result of postponement of commercial production to
end-1Q13 (previously, the production was planned to begin in 4Q12) which made
the cost of project increase. At the same time, 4Q12 norm profit tends to drop by
around 12.6% QoQ due to the following reasons. 1) The lifting cost is projected to
rise by 11.6% QoQ to US$4.8/bbl after the maintenance shutdown of a big project
Bongkot, urging the cost to rise significantly compared with maintenance
shutdown of other projects. 2) In the 4th quarter of every year, operating
expense and selling and administrative expenses higher than other quarters due
to adjusting entries would be recognized, together with extraordinary expenses
like employee bonus. However, this would be held back by revenue from sales of
petroleum products that has increased by 1.8% QoQ which is a result of the
average selling price of petroleum that is projected to increase by 3% QoQ along
with the selling price of natural gas that has increased by 3.8% QoQ to averagely
US$7.97/million BTU and the oil price that has increased by 1.5% QoQ to
US$100.5/bbl. For the selling volume, it is estimated to stabilize from the prior
quarter which was 292,000 bbls/day due to increased production capacity of
Vietnam 16-1 project, MTJDA and Pailin projects that have resumed production
after maintenance shutdown in 3Q12 (compensating decreased production
capacity from maintenance shutdown of Bongkot project in 4Q12). Overall,
FY2012 net profit is projected to stand at B56bn or 25.9% YoY increase, lower
than our current projection by 3.5%.

Profit tends to march toward new high every year from current investment plans
For PTTEP’s growth from now on, the company aims to heighten the production
capacity and sales every year. The targeted level of production capacity is
600,000 bbls/day within 2020 from the current production capacity of 290,000
bbls/day. Sources of production that would help boost the production capacity and
sales in the future are mostly international investment projects such as Zawtika
and M3 projects in Myanmar, Montara project and Cash/Maple’s LNG resource in
Australia, KKD Oil Sands in North America, and also Mozambique resource in East
Africa (the big project from acquisition of Cove Energy that would significantly add
value for the company in the future from the current reserves). We’re convinced
that the abovementioned plans to march toward aggressive growth would be
beneficial for 2013 net profit out look, projected to grow continuously by 11% YoY
and rise to hit the year’s new record high.

Recommend “BUY”… fair value at end-2013 is B195.69/share
The fair value at end-2013 stands at B195.69/share. We reiterate our
recommendation of “BUY” due to long-term fundamentals with continuous growth
from new investment projects. In addition, 2013 PER is currently at only 10.6x
which is lower than the region’s average at 12x.