Bangchak Petroleum

Bangchak Petroleum Plc (BCP)

Earnings below estimate
BCP reported a 2Q13 net profit of Bt407m, a reversal from the net loss of Bt385m posted for 2Q12 but down 81% QoQ. Stripping out an FX loss of Bt1,121m, an inventory loss of Bt919m, a gain from oil hedging of Bt197m, and an insurance payout of Bt1,562m, 2Q13 core earnings would be Bt1,026m, up 1% YoY but down 24% QoQ. The bottom-line was somewhat below our estimate and the consensus, due to a heavier-than-expected FX loss. The core profit was 14% below our number because of a slimmer marketing margin than modeled (but beat the consensus projection of about Bt700m).
Results highlights
The YoY core profit growth drivers were: 1) a greater crude run (up 35% YoY to 96KBD—there was a 30-day maintenance shutdown in 2Q12, 2) greater marketing sales volume (up 10% YoY to 86KBD), 3) a fatter market GRM (up 17% YoY to US$5.7/bbl) and 4) a bigger earnings contribution from the solar power business. The key factors behind the QoQ core earnings contraction were: 1) a smaller crude run (down 4% QoQ), 2) lower marketing sales volume (down 3% QoQ on seasonality) and 3) a weaker market GRM (down 29% QoQ). However, the earnings contribution from the solar power business continued to rise—its EBITDA jumped 80% QoQ to Bt392m.
Outlook
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 bigger contribution from the solar power business. The crude run and marketing sales volume should rise both YoY and QoQ, driven by a full capacity run and high season. BCP’s 3Q13 market GRM is expected to fatten QoQ, led by high seasonal demand. Moreover, the earnings contribution from the solar power business should rise YoY (flattish QoQ), as the second phase started running commercially in 2Q13. There is scope for upside to BCP’s 3Q13 bottom-line from the possibility of an inventory gain.
What’s changed?
1H13 core profit represents 51% of our FY13 core earnings forecast of Bt5,090m, which we maintain unchanged.
Recommendation
In our view, expectations of strong bottom-line growth in 3Q13 should boost the share price going forward. Moreover, 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 10.5x, a deep discount to the regional mean of 14.5x.