PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

Oil leakage and GSP#5 shutdown damage PTTGC
During recent 2 months, PTTGC encountered many dreadful events. We
had initially revised down earnings forecast after LDPE factory's 3.5-
month unplanned shutdown. There are 2 events that we have not
included into the forecast: 1) leakage of a 16-inch offshore crude oil
pipeline at a single point mooring 20 km southeast of Map Ta Phut port,
with 16 barrel (50 ton) crude oil spill; PTTGC had insurance coverage
under the following: 1) property damage of US$2.38bn, with premium
expense of US$2.5m (deductible), 2) marine cargoes liability insurance
of US$330m per trip of oil discharge with 0.5% premium expense
(deductible), 3) third party liability insurance of US$50m (publicrelated
), 2) damage from lightning on waste heat recovery unit (WHRU)
in gas separation plant unit 5 (GSP#5) on 14 August 2013 in the
morning, stopping it from functioning. Repair is preliminarily expected to
take 3-5 months. Thus, PTTGC that receives ethane and LPG from
GSP#5 as raw material for I4-2 olefins factory with total 450,000
ton/year capacity has to lower its production. PTTGC has insured for I4-
1 and I4-2 in case that supplier cannot provide raw material, within B5m
coverage.

Revise down FY2013 earnings forecast to reflect oil leakage and GSP#5 shutdown
We revise down FY2013 earnings forecast by 9.4% to reflect 1)
provision for the leakage set in advance: 1) replacement of the broken
pipeline, projected not to exceed the deductible of property damage
insurance fund of US$2.5m, or B75m, 2) damage due to oil loss (marine
cargoes insurance), preliminarily estimated at US$32,000, or B1m;
which the assured (PTTGC) has to pay B5000 for the insurance
premium, 3) expenses due to damages to third party, mainly for slick oil
removal and environment recovery, including compensation for those
affected from the incident, under our assumption at B1.5bn, which is the
insurance money PTTCG had insured for damage on third party; PTTGC
is projected to claim compensation from the insurance company in
2014-2016 at the average of B500m per year, 2) B400m/month damage
on net profit for 5 months due to GSP#5's maintenance shutdown,
PTTGC is projected to earn only B15m compensation from the insurance.

"HOLD". Share price pressed in short term
Under new forecast, yearly dividend is revised down to B2.97/share
(initially B3.40) to reflect 1H13 dividend B1.62 (marked XD on 29
August, paying dividend on 12 September 2013), lower than expected.
Dividend is reduced to reflect down revision of profit. Fair value at end-
2013 (DCF) is B74.50/share (falling from B77.92). Though there is some
upside from new fair value, PTTGC share price would face short-term
pressure. Thus, we recommend "HOLD".