PTTEP

PTTEP Plc

Possible startup of Montara could be near-term share price catalyst. PTTEP’s share price has risen by nearly 10% over the past two weeks after easing of worries that it may make another cash call to take up additional stakes in Rovuma in Mozambique plus new hopes Montara is close to startup. We believe the kickoff of Montara - which could take place in May or at least in 2Q13 – will be a near term catalyst for share price. The current share price remains a good entry point for long-term investors to accumulate before the street upgrades valuations to reflect Montara. Valuation wise, PTTEP is trading below peers with 2013 PE of only 9.3x vs. the 13.6x regional average. We maintain BUY with end-2013 TP of Bt200.
Montara startup is drawing near. Management appeared more confident this time that operations at Montara will actually begin in 2Q13. The company targets the first oil production in May, since most of the key equipment is installed and testing is almost complete. PTTEP also said that there is still no indication that additional impairments for this project need to be set aside, even if oil price stays at the current level. Management did say that profit contribution from this project will initially be small due to high depreciation but cash profit (EBITDA) will be strong with >70% EBITDA margin since the key product is oil.  
2Q13F outlook. Management guided to a stable gas price in 2Q13F from 1Q13, as there was no significant adjustment at key operating fields (mainly Bongkot) in the quarter. The lower fuel oil price in late 1Q13 to present has yet to affect gas price. The direction of average selling price (ASP) follows oil price, which has weakened by 6% QTD from 1Q13. Assuming a similar proportion of gas and liquid products as in 1Q13, we estimate 2Q13F ASP could slip by 3% QoQ to US$65/bbl. Fortunately, this can be offset by higher production at S1, which is able to sustain production rate at above target, plus additional production from Montara.   
Still no official confirmation for new partners in Rovuma. Despite the news that a 20% interest in Rovuma Offshore Northern Area 1 in Mozambique was sold to new partners by two existing shareholders – Anadarko and Videocon - PTTEP has not received official confirmation. Management continues to maintain its preemptive rights to take more stakes if the price is attractive, i.e. lower than PTTEP’s acquisition cost for Cove Energy, though at the same time, it claims to be satisfied with its current 8.5% holding. We believe it is unlikely that the company will end up increasing its stake in the project since the price offered by new partners is higher, going by press reports. This will reduce investor concerns of another cash call by PTTEP to buy more in Rovuma.