Thai Oil

Thai Oil Plc (TOP)
2014 GRM and aromatics spread to stabilize yoy
Overall refinery and aromatics petrochemical businesses in 2014 are projected to
stay strong from 2013. Average GRM in 2014 would stabilize at around US$4-
5/barrel. Despite additional finished oil supply of 1 million barrels a day from Jubail
refinery in Saudi Arabia (400,000 barrel a day, starting a commercial run in late
4Q13), three refineries in China (480,000 barrel a day in total, in 2014), and a
refinery in India (120,000 barrel a day, in 2014), it would be negated by permanent
shutdowns of refineries in China, Japan, and Australia in 2014 with combined capacity
of 852,000 barrel a day, so net additional supply would be only 148,000 barrel a day,
comparing to total regional oil demand that is anticipated to grow 580,000 a day in
2014. For the aromatics business, paraxylene (Px) and benzene (Bz) spreads in 2014
are projected to remain close to 4Q13 average. There is nothing to worry about a
new supply of 4.1 million tons a day from a Px factory in South Korea as the factory
would not be able to run at its full capacity because around 70% of its feedstock such
as Mixylene or Toluene has to be bought from external market while demand and
supply of the feedstock is now in balance, so Px price might not be worth producing.
For Bz, there would be a support from a rising demand for styrene monomer or SM
(Bz is a raw material), while the current stock is very low. SM demand in 2014 is
anticipated to grow 3%, while Bz supply would grow only 2.8%, and increasing
popularity of shale gas would make new Bz supply decrease in the future, so this
would make Bz spread remain high in the long run.
- Profit to weaken from planned shutdown in 2014. Still advantageous in long run
We estimate 4Q13 profit to weaken from decreasing stock gain. However, there is
still the hope that an approach of winter will help boost GRM in the rest two months
of 4Q13 from only US$3-4/barrel at present. Furthermore, maintenance shutdowns of
refineries in Europe during the end of the year would make some supply disappear,
which would help negate an effect from new capacity from a 400,000-barrel-a-day
Jubail refinery in Saudi Arabia that is starting a commercial run in late 4Q13, while
Jubail’s major export targets are Europe and Africa. Preliminarily, we project 4Q13
GRM to stay close to that of 3Q13. Similarly, price and spread of aromatics products
would remain high close to those of 3Q13 because of a polyester season during
winter, which would help negate an impact from additional Px supply from a 800,000
ton/year capacity Tenlong factory that had started its commercial run in late 3Q13.
Accordingly, TOP’s profit is projected to grow 5.7%yoy in 2013 and then decline
10.8%yoy in 2014 from a major turnaround of CDU unit 3 with a capacity of 165,000
a day for 40 days in the middle of the year, which would make the utilization rate
- Buy. PER lower than regional average
FY2014 fair value (DCF) is B76.36/share, implying 21% upside is estimated. We
reiterate to buy. The current PER is low at only 9.8x, compared with the sector’s
average of 12.4x.