PTT

PTT Plc

Investment thesis
At the group analyst meeting, we feel that the firm was more optimistic that the govt will increase the cooking gas price than it was three months ago. We believe that a price rise would presage a higher PTT ex-GSP LPG price. Recent petroleum product contributions to the Oil Fund have slashed the Fund’s deficit. A cooking gas adjustment would build positive sentiment toward PTT, as it would boost confidence in the govt’s determination to execute its liberalization plan for domestic energy prices, particularly NGV (due in early of 2014).    
Regional power expansion and …
PTT will move more aggressively into power generation since establishing a new power flagship, GPSC. The firm aims to consolidate other legacy power assets within the group and to operate across ASEAN—Myanmar, Laos, the Philippines, Vietnam and Indonesia—some of the countries are subject to power shortages. In our view, the move coincides with the govt’s plan to boost coal-fired/hydropower project development outside of Thailand. Moreover, if GPSC were to list on the SET, it would unlocked the value of PTT’s power assets.    
…a world scale complex in Vietnam—the main L-T growth engines
Management is optimistic on the feasibility of the planned integrated petrochemical refinery complex in Vietnam, due to logistic advantages; COD would be in 2020 at the earliest. The project is planned for Binh Dinh province, near the coast and relatively distant from major population areas. The Vietnamese govt won’t be a shareholder, according to PTT, which expects investors from the Middle East, South Korea, Japan and Indonesia and targets holding at least one-third in the project itself.
The pre-feasibility study suggests that the project would generate an annual income of US$30-35bn with a project IRR of 14-15%. The investment cost is initially estimated at US$25-30bn. Nonetheless, we think it would be premature to assume value accretion. The Vietnamese govt recently approved PTT undertaking a detailed study to determine the viability and evaluate the costs with greater accuracy. The shareholding structure will also need to be finalized. Management cited said the study will be completed within about 12 months.      
Eyes on energy price de-control in June?
This time around, management guidance made us feel that the govt is very likely to float the cooking gas price in June. But that leaves the question of ex-GSP LPG price adjustment. PTT told us that the recent huge gains from the contributions of other petroleum products to the Oil Fund would ease concerns about the Oil Fund’s deficit, which has diminished to about Bt8bn from a nadir of Bt20bn. With a cash inflow of Bt200m/day to the Fund, we see no reason for maintaining the ex-GSP price cap, given a higher cooking gas price. Based on our model, every US$100/t rise in the ex-GSP LPG price would boost PTT’s yearly profit by Bt4.3bn.