Thai Oil

Thai Oil Plc (TOP)

- Net loss projected in Q2 2013, due to stock loss and Fx loss
We estimate 2Q13 earnings of TOP to be a net loss of B1.45bn, compared with a net
profit of B4.36bn in the previous quarter. Major reasons for the significant plunge in
earnings are as follows. 1) Market GRM is anticipated to decline as much as 42.4% to
US$3.8/barrel following narrower spreads of every type of finished oil (except fuel oil).
2) There would be a stock loss of US$1.8/barrel from the average crude oil price in
June that decreased US$5.3/barrel from March to US$100.3/barrel. 3) A spread of Px-
ULG95 in 2Q13 is projected to decrease 18.4%qoq to US$436/ton, while a spread of
Bz-ULG95 would remain close to that of the previous quarter at US$305/ton. 4) The
company would book a significant Fx loss of B2.88bn from the Baht depreciation of
B1.8/US$ from end-1Q13. Moreover, in 2Q13 there would not be a BOI tax privilege
like it was in 1Q13 because the earnings before tax of the refinery business in 2Q13
are projected to face losses. However, for the lubricant business (TLB), product spread
and utilization rate are projected to increase 17.5%qoq and 14.1%qoq, respectively, in
2Q13 because it is a high season for agriculture in which there usually is high oil
changing. Consequently, net GIM (gross integrated margin) in 2Q13 would drop
abruptly by 45.1%qoq to US$4.5/barrel from the previous quarter. Overall, 1H13 net
profit is projected at B2.91bn, skyrocketing 801.2% from the same period last year
but accounting for only 22% of our earnings forecast for FY2013.
- To reverse to notable net profit in 3Q13
Preliminarily, we maintain our net profit forecast for FY2013, believing that TOP would
reverse to show a notable net profit again in 3Q13 due to following contributions. 1)
GRM in 3Q13 is projected to almost double from 2Q13 (Singapore GRM has recently
surged significantly to touch US$10/barrel from only US$4-5/barrel in 2Q13) as a
result of a decreasing supply after an unplanned shutdown of 4 refineries in Asia and 2
in the US caused a considerable decline in production capacity of finished oil, especially
benzene (there has still not been a declaration from the shut down refineries when
they would resume their normal operation). Moreover, demand is also being boosted
by the U.S. driving season and Indonesian Ramadan. 2) Dubai crude oil price in 3Q13
is projected 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) Aromatics price in 3Q13 would shift slightly from 2Q13
because of a new supply from Tenglong plant with an annual Px production capacity of
800,000 ton has been postponed (from previously scheduled in May 2013). In
addition, in late 3Q13 throughout early 4Q13, it is a season of goods production for
coming New Year festival and winter, which would result in entrepreneurs restocking
their raw material.
- Buy. Refinery business to recover aggressively in next 1-2 months
2013’s fair value, using DCF, is B77.83. We reiterate to buy TOP. In the next 1-2
months we believe the refinery business would grow remarkably on seasonal effect
and because of the present supply shortage. For the aromatics business, overall
earnings in 2H13 would be better than expected because of the postponed supply and
increasing demand as a result of the high season.