PTT

PTT Plc
Investment thesis
Meeting with PTT yesterday confirmed our view that its ex-GSP LPG price will lag the planned price rise for designated cooking gas. We are also pessimistic over the 3Q13 operational outlook, due to the economic slowdown and the shutdown of GSP#5. As such, we remain negatively biased with regard to the prospects for the share price in the short-term. We continue to prefer PTTEP to PTT. In order to reflect our recent earnings forecast cut, our DCF YE13 target price drops to Bt389 from Bt396.           
Weaker 3Q13 operational outlook than earlier envisaged …
We are now more pessimistic about PTT’s 3Q13 operational outlook. Apart from the slowing economy, the shutdown of GSP#5 unit is likely to hit hard on gas sales and GSP output. As 200mmcfd of gas is fed into the unit—whose capacity comprises 24% of total GSP output, we now anticipate that 3Q13 gas sales and GSP output will fall to 4,600-4,650mmcfd and 1.2-1.3mt, respectively, from 4,675mmcfd and 1.6mt in 2Q13. Also, PTT guidance on rising NGV demand fits with our expectation of heavier NGV losses in 2H13—we assume losses of Bt5.2-5.5bn/quarter against Bt4.8bn/quarter in 1H13.  
…FY13 profit forecast cut on lower gas sales and GSP output
The shutdown of GSP#5 unit and the macro-economic headwind will have a twin effect on PTT’s gas sales—we now assume only slight growth of 3% YoY to 4,650mmcfd (from 4,750mmcfd). Furthermore, the outage of 24% of GSP capacity will squeeze FY13 output to 5.8mt (our earlier assumption was 6.4mt). As such, we have cut our FY13 EPS forecast a further 4.4% to Bt36.3, but have upped our FY14 EPS projection by 1% to Bt43.3, premised on insurance payouts for business interruption brought about by the GSP#5 outage—we expect a Bt1.1bn payout.
Concerns on subsidy on LPG imports eased—good news & bad
PTT has eased our concerns over the subsidy for extra LPG imports made necessary by the GSP#5 shutdown—the govt will cover the extra costs. But the firm also said that its ex-GSP LPG price will lag cooking gas price rises (slated to start in Sept), as the price rises will be allocated to burning off the losses the govt runs up subsidizing LPG imports. The guidance was expected, but raises concerns—assuming monthly Bt0.50/kg increases to the cooking gas price, it would take six months or more to burn off the accrued Bt4.8bn loss; that loss will rise further in the months ahead. 
Gas pipelines unlikely to be spun off
According to the CEO, the firm won’t spin off pipeline assets into separate entities, nor to a listed infrastructure fund, due to a tax dispute over asset transference to a new entity (which might be passed onto end-users). In our view, the decision eases an overhanging issue. With the pipelines spun off, the firm would look less attractive to investors, as its “holding company” features would be amplified, so the market would subject it to a bigger holding company discount than it does currently.