Thai Oil

Thai Oil Plc (TOP)

Q1 2013’s profit to surge aggressively 90%qoq. GRM, PX spread, FX gain rise
We estimate TOP’s net profit in 1Q13 at B3.65bn, surging 89.9%qoq due to following
contributions. 1) Market GRM is projected to increase to US$6/bbl from US$5.2/bbl
following wider spread of every finished oil. Although in 1Q13 the company would book
a stock loss and a loss from LCM of around US$1.3/bbl because the crude oil price at
end-1Q13 dropped around US$1/bbl from end-4Q12, net GRM in 1Q13 would still
increase to US$4.7/bbl from US$3.3/bbl in 4Q12. 2) Px-ULG95 spread is anticipated to
widen by 15.1%qoq to US$586/ton because the product purchase contract is 1-month
forward, so the company would benefit from the very high spread in December 2012,
which would compensate for the production capacity that decreased to 82% from 88%
because the CCR refining unit producing feedstock was shut down for 14 days. 3) The
company would book a high FX gain of around B2bn because the Baht has appreciated
4.2% from end-4Q12. Moreover, the company would also have a BOI tax privilege of
around B400m for its investment on environmental project. Overall, 1Q13’s net profit
would comprise 23% of our FY2013’s earnings forecast.
- Cut 2013-2014’s forecast to reflect possible lower-than-expected industry growth
We cut our net profit forecast for 2013-2014 to reflect likely disappointing
petrochemical price and spread outlook. The overall economy has still now shown a
solid sign of recovery, especially China, the world’s major petrochemical consumer.
Chinese demand for petrochemical products stayed only flat from end-2012, whereas
it was projected to rebound significantly since 1H13. However, we strongly believe
petrochemical price and spread in 2013 would still increase from 2012. The anticipated
economic recovery in 2H13 would be a key factor to drive the demand. We revise
down our assumption for Px-ULG95 spread in 2013-2014 to US$500/ton from
US$550/ton. Moreover, we also cut an assumption for the utilization rate in 2014 from
100% to 97% to reflect a 30-day major turnaround of the main refining unit CDU13,
which has a production capacity of 165,000 bbls/day, in 1Q14, resulting in a lower net
profit forecast as shown in the table. For 2Q13’s profit outlook, we project to see a
decrease in profit from 1Q13 because of the following reasons. 1) CDU2 refining unit
with a capacity of 50,000 bbls/day has planned for a 15-day maintenance shutdown.
2) GRM in 2Q13 would soften from 1Q13 because the sluggish economic condition
would slow down the demand and entrepreneurs would instead use the stocks they
have bought since the beginning of 1Q13. Moreover, Dubai crude oil price at end-2Q13
would be lower than US$105.6/bbl (a closing price at end-1Q13), as it is standing at
only US$98/bbl now. Accordingly, the company might have to book a high stock loss.
3) Px-UGL95 spread would stand at US$450-500/ton. Although a demand for
downstream products of polyesters would weaken following the economic condition, a
maintenance shutdown season of aromatics plants in May would make some supplies
disappear from the market, which would thus help sustain aromatics price. However,
the spread would still be narrower than that in 1Q13.
- New 2013’s FV is B77.83/share. Buy on weakness
Under the new forecast, 2013’s fair value (DCF) is B77.83 (from B90). We reiterate
our BUY recommendation. Although we believe the share price has substantially
reflected a negative factor from the overall industry outlook that has still not shown a
solid recovery, as long as the oil price, GRM, and petrochemical price are still
negatively fluctuating, the share price would be pressured in the short term. We
therefore recommend buying when the price weakens.