Bangchak Petroleum

Bangchak Petroleum Plc (BCP)      

Investment thesis
The key takeaways from the analyst meeting reaffirmed our positive view of BCP’s growth outlook for the short- and long-term. The firm’s core earnings should rise YoY and be fairly stable QoQ in 2Q13—unlike other Thai refining-cum-chemical plays, whose core profits are expected to weaken QoQ. Moreover, even though we are bearish about refining fundamentals, we believe that BCP’s business model (together with the possibility of it unlocking hidden value by spinning off solar assets) will generate greater investor interest in the stock. Its valuation remains undemanding—an FY13 PER of 10.8x, a deep discount to the regional mean of 20.9x.   
YoY core earnings growth expected for 2Q13
Even though the average Singapore benchmark GRM in 2Q13-to-date has fallen by 18% YoY and 34% QoQ to US$5.5/bbl, BCP’s core earnings for the quarter are expected to post YoY growth (and be stable QoQ), driven by: 1) a bigger crude run, 2) increased marketing sales volume, 3) a fatter base GRM, 4) a greater marketing margin and 5) an expanding contribution from the solar power unit. After a 19-day unplanned shutdown in late March, BCP’s refinery has since resumed normal operations with a crude run of 108KBD currently (up by 52% YoY and 8% QoQ).
Moreover, the firm’s base GRM in 2Q13 is expected to improve both YoY and QoQ, driven by better product yields and higher domestic sales. BCP will also recognize a full quarter of earnings from the second phase (both farms) of its solar power business.
Volume growth to remain a key FY13 earnings driver
This year, we expect substantial volume growth to outweigh the effect of forecast GRM squeeze of 16% YoY to US$7/bbl (due to supply pressure). BCP’s refinery has resumed normal operations since October 2012; the firm now expects an average crude run for FY13 of 100-105KBD (up 36-42% YoY), slightly lower than the previous guidance of 105-110KBD. The greater crude run will contribute to higher marketing sales volume, which is forecast to rise 9% YoY to 85.5KBD. Solar power business (noted above) capacity expansion comprises another driver of growth this year. In order to adjust for the firm’s latest guidance on the FY13 crude run, we have cut our FY13 net profit forecast by 3% to Bt5,090m.
Investments for further growth on-track
BCP’s investment projects—a 17% capacity expansion at its refinery, opening new service stations and new solar power farms (phase 3)—have been progressing as planned. The refinery capacity expansion is expected to be completed in mid 2014. In the meantime, construction should start on phase three of the solar power operation (PPAs for 48MW) in August 2013. Commercial start-up is slated for May 2014. The completion of Phase 3 will bring BCP’s total solar power capacity to 118MW (up 68% from its current capacity of 70MW).