PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

In line with estimates
PTTGC reported a strong 1Q13 net profit of Bt12,075m, up by 23% YoY and 16% QoQ. Stripping out extra items, 1Q13 core profit would be Bt10,437, up by 76% YoY and 27% QoQ. The bottom-line was in line with our estimate and the consensus, while the core profit was in line with our number, but was 8% below the street projection.
Results highlights
The drivers were: 1) a fatter YoY GRM, 2) expanded aromatics and olefins margins, brought about by high seasonal demand in the face of tight supply, and 3) greater olefins sales volume. The refinery’s 1Q13 run rate was 101%. Market GRM rose 15% YoY (but slipped 6% QoQ) to US$4.37/bbl. However, accounting GRM dived by 58% YoY and 20% QoQ to $3.73/bbl, due to a stock loss (plus LCM) of $0.91/bbl (PTTGC booked a hedging gain of $0.27/bbl).
On the chemical front, PX spread rose by 22% YoY and 12% QoQ to US$681/t, while BZ spread surged by 151% YoY (but softened 2% QoQ) to $429/t. HDPE spread increased by 39% YoY and 16% QoQ to $521/t and LLDPE spread jumped by 74% YoY and 13% QoQ to $516/t. In addition, LDPE spread rose by 35% YoY and 17% QoQ to $498/t. The run rates of olefins facilities rose both YoY and QoQ, as there were no gas feedstock shortages and no shutdowns during the quarter.
Outlook
PTTGC’s 2Q13 core earnings are expected to weaken QoQ (but be flattish YoY), due to sales volume declines (caused by maintenance turnarounds), lower GRM and slimmer chemical spreads as a result of seasonally lower demand. Furthermore, weakening crude prices suggest downside risk to PTTGC’s 2Q13 bottom-line, as there could be a stock loss and/or LCM.
What’s changed?
Even though 3M13 earnings represent 34% of our FY13 net profit forecast of Bt35,125m, we maintain it unchanged, as we expect the firm’s 2Q13 profit to decline QoQ, as noted above.
Recommendation
Despite the impressive 1Q13 result, we think anticipation of an earnings contraction in 2Q13 and concerns about demand will cap PTTGC’s price performance in the near-term. Incipient signs of a demand recovery in 2H13 would catalyze the share price going forward, we believe. Moreover, there is scope for upside to earnings from synergy-building and efficiency improvement projects, as well as a potential joint investment with Pertamina. The stock currently trades at an FY13 PER of 9.4x, a steep discount to the regional mean of 15.4x. PTTGC remains our top pick within Thai chemical space.