Bangchak Petroleum

Bangchak Petroleum Plc (BCP)

Investment thesis
BCP’s diversified business model will sustain its 2Q13 core earnings strong, we believe, despite the weaker market GRM environment—unlike other Thai refining-cum-chemical plays, which are more exposed to market GRM. Then, expectations of hefty profit growth in 3Q13 should catalyze the share price going forward. Even though we are bearish about refining fundamentals, we think 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 months ahead. Its valuation remains undemanding—an FY13 PER of 10.9x, a deep discount to the regional mean of 16.9x.
Core earnings growth expected for 2Q13
We expect BCP to post a 2Q13 net profit of Bt1,162m, a reversal from a net loss of Bt385m in 2Q12, but down 47% QoQ. Stripping out an assumed FX loss of Bt693m (against a gain in 1Q13), an inventory loss of Bt1,126m (against a gain in 1Q13) and an insurance payout of Bt1,350m, 2Q13 core earnings would be Bt1,576m, up by 55% YoY and 16% QoQ.
The drivers were: 1) a greater crude run (up 36% YoY but down 4% QoQ to 96KBD—there was a 30-day maintenance shutdown in 2Q12 and a 19-day unplanned shutdown, March 19-April 6), 2) greater marketing sales volume (up 10% YoY but down 2% QoQ), 3) greater market GRM (up 24% YoY but down 25% QoQ to US$6/bbl), 4) a 28% QoQ jump in marketing margin (but down 26% YoY) to Bt0.64/liter and 5) a bigger earnings contribution from the solar power business.  
3Q13 core profit to expand both QoQ and YoY
BCP’s 3Q13 core earnings are expected to turnaround YoY from the core loss posted for 3Q12 and increase QoQ, led by a greater crude run, increased marketing sales volume, a fatter market GRM and a greater contribution from the solar power business. The crude run should rise both YoY and QoQ, as there was a fire at CDU No.3 on July 4, 2012 (the refinery resumed normal operations in October 2012) and an unplanned shutdown during early April 2013. The firm’s average crude run in 3Q13-to-date was 108-110KBD, up from 39KBD in 3Q12 and 96KBD in 2Q13.  Moreover, marketing sales volume should increase both YoY and QoQ in tandem with a greater crude run and high seasonal demand.
Furthermore, BCP’s market GRM in 3Q13 is expected to fatten QoQ, driven by high seasonal demand. The mean Singapore benchmark GRM in 3Q13-to-date has jumped 36% QoQ to US$8.7/bbl. Moreover, the earnings contribution from the solar power business should rise YoY (flattish QoQ), as the second phase started running commercially in 2Q13. Crude prices are currently increasing, due to political unrest in Egypt, which could boost BCP’s 3Q13 bottom-line, as an inventory gain may be booked for the quarter against an inventory loss in 2Q13.