Energy Sector

Energy Sector

Shutdown of gas separation plant unit 5 affects PTTGC more than PTT
PTT informed the SET that on the morning of 14 August 2013, there was an
accident incurring from the thunder storm and lightning strike on the Waste
Heat Recovery Unit or WHRU of gas separation plant unit 5 (GSP#5),
resulting in its cease of operation. From preliminarily assessment, the repairs
will take around 3-5 months and PTT would put the highest effort to minimize
the impact on domestic LPG consumption. As the GSP#5 is a gas supplier of
PTTGC’s I4-2 plant (olefins production capacity of 450,000 tons a year),
PTTGC will inevitable be affected by the operation cease. Preliminarily, PTTGC
has arranged mitigation plans due to the plant shutdown by 1) coordinating
with related parties including PTT to source for natural gas and/or search for
natural gas from other sources, and 2) allocating natural gas, especially
ethane among PTTGC’s olefins plants to maximize the value and to reallocate
olefins products to efficiently operate both upstream and downstream
products to minimize impact to PTTGC’s performance and customer. PTTGC
has a property damage and business interruption insurance policy, which
covers suppliers' extension. PTTGC and the insurer are currently in the
process of appraising the claim value.

Depressing PTTGC’s profit by 4-7% and PTT’s by 1.5-2.5%
In terms of financial impact, we assess the incident to have a less effect on
PTT than PTTGC. PTT’s net profit would decrease only 1.5-2.5% from
previously, under an assumption for the repairs to take 3 and 5 months,
respectively. The current capacity of GSP#5 is 1.5 million tons a year, which
is 22% of the combined capacity of all gas separation units at 6.8 million tons
a year. The profit from the gas separation business accounts for 20-25% of
PTT’s net profit each year. For PTTGC, in the worst case scenario, the net
profit would fall 4-6% from previously, based on PTTGC’s estimate of the
maximum preliminary impact to the net profit at B400m a month, which was
made under an assumption that the I4-2 plant has to cease operation for 3
and 5 months, respectively (still not including the fact that PTTGC might
search for natural gas from other sources or allocate natural gas among
PTTGC’s olefins plants). However, we believe the entire property damage and
the business interruption would finally be compensated by the insurer, but it
needs time. Consequently, in the next 1-2 quarters, PTT and PTTGC might
have to make provision for the damage in advance. For PTTEP, an effect from
the incident on natural gas selling business is very insignificant because the
company is bound by a take-or-pay agreement.

Downgrade to HOLD for PTTGC, reiterate BUY for PTT
We downgrade our recommendation for PTTGC([email protected]) from BUY to
HOLD in order to reduce a risk from the share price correction in the short
term as a result of the oil leak and the unplanned shutdown of the LDPE plant
that might affect 3Q13 earnings. For PTT ([email protected]), we foresee only a
slight impact, so the share price weakness an appropriate chance to
accumulate for long-term investment.