Bangchak Petroleum

Bangchak Petroleum Plc (BCP)

Investment thesis
BCP’s earnings momentum should remain strong through 2Q13—unlike other Thai refining-cum-chemical plays, whose bottom-lines are expected to weaken QoQ. Moreover, even though we are bearish about refining fundamentals, we think its business model (together with the possibility of it unlocking hidden value by spinning off solar assets) will generate greater investor interest. BCP’s valuation remains undemanding—an FY13 PER of 10.0x and an FY13 EV/EBITDA ratio of 6.5x, deep discounts to the regional means of 13.1x and 7.7x, respectively.   
QoQ core profit growth for Q1 2013
We expect the firm to post a 1Q13 net profit of Bt2,218m, down 9% YoY but up 93% QoQ. Stripping out expected extra gains from FX, inventory, and hedging totaling Bt915m, 1Q13 core profit would be Bt1,302m, a turnaround from a core loss of Bt53m in 1Q12 and up 27% QoQ.
The drivers were: 1) a greater QoQ crude run (down 1% YoY, but up 18% QoQ to 100KBD), 2) higher marketing sales volume (up by 3% YoY and 7% QoQ), 3) a fatter market GRM (up 12% YoY [but down 30% QoQ] to US$7.5/bbl), despite a weaker marketing margin (down by 7% YoY and 12% QoQ to Bt0.58/liter), 4) a bigger earnings contribution from the solar power business (the first phase started up in 2Q12 and 3Q12, while the first farm of the second phase started contributing revenue on March 6, 2013), 5) lower interest expenses and 6) a lower effective tax rate.  
Q2 2013 core profit to rise both QoQ and YoY
Core earnings growth for 2Q13 will be led by a greater crude run, increased marketing sales volume, a fatter market GRM and an expanding contribution from the solar power unit. The crude run is expected to rise both YoY and QoQ, as there was a 30-day turnaround for maintenance in 2Q12 and a 19-day unplanned shutdown during March 19-April 6, 2013 (BCP’s average crude run was about 107KBD before the unplanned shutdown). Moreover, marketing sales volume should increase both YoY and QoQ, as other Thai refineries have maintenance shutdowns slated for 2Q13.
Note also that BCP’s market GRM in 2Q13 is expected to improve both YoY and QoQ, driven by heavy maintenance shutdown schedules among Asian refineries, better product yields (after its refinery resumed normal operations) and higher domestic sales. Moreover, the firm will recognize a full quarter of earnings from the second phase (both two farms) of its solar power business.
Insurance reimbursement …scope for upside to 2Q13 earnings
BCP’s 2Q13 bottom-line could get a boost from an insurance payout for the fire at its CDU No.3 unit in July 2012. Based on management guidance, we anticipate that the insurance reimbursement will be not be less than Bt1bn (we haven’t factored the payout into our model).