PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

Q2 2013’s profit to fall 70.1%qoq, due mainly to refinery business and Fx loss
We estimate 2Q13’s net profit of PTTGC at B3.6bn, plunging as much as
70.1%qoq mainly from a significant decrease in earnings of the refinery business
and an Fx loss of B2.6bn as a result of the Baht depreciation of B1.8/US$ at end-
2Q13. The earnings decline of the refinery business to a net loss in 2Q13 has
stemmed from the following reasons. 1) A 1-month maintenance shutdown of a
refinery with a production capacity of 210,000 barrel a day (during 15 May – 20
June 2013), which made total refinery utilization rate in 2Q13 drop to only 63%
from 101% in the prior quarter. 2) Market GRM decreased around 37.1%qoq to
US$2.7/barrel. 3) There was a stock loss of around US$2.7/barrel from a fall of
US$7/barrel in the crude oil price at end-2Q13 from end-1Q13. For the aromatics
business, it is also projected to weaken in 2Q13 following the spreads of Pxcondensate
and Bz-condensate that have contracted 17.0%qoq and 2.8%qoq to
US$554/barrel and US$423/barrel, respectively. Moreover, the aromatics plant
utilization rate has decreased to 84% from 92% in the previous quarter. However,
there is still a benefit from improving performance of the olefins business to
support the overall earnings in this quarter. The spreads of main downstream
products HDPE, LDPE, and LLDPE have widened by 12.3%qoq, 11.7%qoq, and
17.7%qoq, respectively. Overall, 1H13’s net profit is projected at B15.7bn,
increasing 46.5% from the same period last year and comprising 46% of our
FY2013’s earnings forecast.
- Q3 2013’s profit to shift qoq, not substantially though because of planned shutdown
Preliminarily, we maintain our net profit forecast for FY2013, projecting the norm
profit in 2H13 to return to grow again due to a recovery of the refinery business.
1) GRM is projected to rise on seasonal effect of the U.S. driving season and
Ramadan in Indonesia in 3Q13, reflecting from the current GRM (Singapore) that
has doubled from the beginning of 2Q13 to stand at US$8-9/barrel on average, as
well as the winter season in 4Q13. 2) Dubai crude oil price in 2H13 would be able
to stand above US$100/barrel along with the economic recovery, especially of the
US in 2H13 that would boost an oil demand and prevent a high stock loss like it
was in 1Q13. 3) The refinery would resume its 100% utilization rate after the
planned shutdown in 2Q13. 4) The spread of olefins product would be in a gradual
uptrend along with global economic recovery that would enhance global oil
demand. Moreover, at the end of 3Q13 throughout the beginning of 4Q13, it is a
season of goods production for coming New Year festival, which would result in
entrepreneurs restocking their raw material. However, the recovery of the profit
in 3Q13 might not be remarkable because it would be suppressed by a decline in
olefins production and sales due to a 35-38 days of maintenance shutdown of the
I4-1 unit with ethylene production capacity of 515,000 tons a day (during July-
August). Accordingly, the profit would be able to grow again only in 4Q13.
- Buy. Profit already bottoms out in Q2 2013
2013’s fair value, using DCF, is B78.10. We recommend buying because the profit
would likely have already bottomed out in 2Q13 and a gradual recovery would be
seen from both the refinery and olefins businesses.