Petrochemical

Petrochemical sector

Overall global economic recovery boosts sector growth
Global economy, especially the US's economy, has been reviving as the
leading economic indicators have been signaling recovery in recent 6-12
months. Japan's economy also signaled recovery under new Prime Minister's
leadership since early-2013 until now. Economy in Europe Union has been
declining at slower rate, showing improving stability, projected to negate
China's economic condition as China has maintained its monetary policy
focusing on sustainable growth, which may slightly lower China's economic
growth rate to 7% in 2013, compared to 7.8% in 2012. In 2H13, it is
projected that there will be supporting factors that boost economy and
demand in commodities e.g. oil and petrochemical products.
- 2Q13 profit projected to make year’s low, to bounce in 3Q13
Overall global economic recovery has increased demand for oil. GRM has
risen up to USS$8-9/barrel from US$4/barrel in 2Q13, reflecting relief in
China. Moreover, it is supported by seasonal effects, both the US's driving
season which was delayed to late-June and oil stock-building in Indonesia
before Ramadan. Improving economy in 2H13 is also another factor that
would boost GRM up high continuously. For petrochemical business, spread of
olefin products, especially downstream products like HDPE and LDPE, is
projected to recover gradually. However, spread of aromatic products is
projected to decline in 2H13 compared to 1H13 due to pressure from
gradually increasing new supply. 3Q13 profit is projected to rise implicitly
from 2Q13, which was predicted to be the lowest of the year as GRM fell by
24% qoq. Fall in crude oil price may cause stock loss and decrease in spread
of aromatic products, while spread of olefin products can remain stable.
- Stock prices show previous negative factors, top picks are TOP and BCP
We upgrade to "NEUTRAL", believing that decrease in stock prices has
reflected previous negative view of this sector. This sector's perspective is
projected to become more blissful. In next 1-2 months, refinery sector would
show larger growth than petrochemical sector due to seasonal effect. Also,
petrochemical sector is predicted to grow gradually. For short term, TOP (65-
70% share of profit from refinery business) and BCP (80-85% share of profit
from refinery business) are top picks. FV in 2013 are B77.8 and B50.0 per
share, respectively. For PTTGC(25% share of profit from refinery business),
we upgrade from "HOLD" to "BUY" as its upside has grown to over 12% while
the 2013 FV stays at B78.1 per share.