PTT Global Chemical

PTT Global Chemical Plc (PTTGC)
Share price decline already incorporates impact from gas supply disruption. We believe the 6% fall in PTTGC’s share price over the past few days already prices in the damage from the gas supply disruption, which we estimate at ~6% of our earnings estimate for 2013F. Although we expect the market to remain cautious on the stock in near term given the three hits it has taken over the past month or so, our positive view on earnings outlook and its future growth from new capacity is unchanged. We reaffirm our BUY rating with TP rolled over to mid-2014 to Bt92/share, derived from 1.6x PBV (+0.9SD). This implies P/E of 7.9x for 2014F vs. current 13x for regional peers.
Gas supply disruption from unplanned shutdown of GSP#5. The company held a conference call about the disruption in gas supply caused by the unplanned shutdown of PTT’s gas separation plant unit 5 (GSP#5). Facing a 3-5 month shutdown of GSP#5, PTTGC plans to reduce its ethylene cracker run to 85% from the planned 96%, mainly at the I4-2 plant, which sources its gas feedstock directly from this GSP. This plant will be run with ethane feedstock at the minimum of 30t/h (normal is 60t/h) and LPG at maximum of 25t/h (up from 5t/h). The LPG feedstock will be diverted from its own refinery and aromatics plant. It may consider importing ethylene from other plants if spread between HDPE-ethylene is higher than US$180/t, vs. the current US$175/t. The loss of revenue will partly be covered by insurance (deductible is 60 days and maximum compensation is US$5mn). Management believes its estimated Bt400mn/month impact is the high end for damages.
3Q13F profit could be hurt by the three incidents. PTTGC’s 3Q13F earnings could be lower than expected, hit by three blows: the unplanned shutdown of its LDPE plant, the oil leak during crude oil unloading and now the disruption in gas supply. Helping to provide some offset is stronger product spread QoQ, especially GRM, as well as a potential stock gain from the higher oil price. Product spread for olefins and aromatics products is expected to be sustained at current levels, supported by seasonal demand despite less bullish buying sentiment from China than usual due to its slower economy.
2013F revised down by 10%. We have reduced our earnings forecast for 2013F by 10% to reflect all three incidents taking place in 3Q13F. There could be some upside to earnings in 2014F from insurance compensation.
Target price rolled over to mid-2014 at Bt92/share. We have rolled over our TP to mid-2014, making TP Bt92, based on 1.6x PBV. This implies 31% upside to the current share price. The company announced an interim dividend of Bt1.62/share, equivalent to a 45% payout ratio. XD is 29 August 2013.