PTT

PTT Plc

Investment thesis
At the group analyst meeting, we felt that the firm was more optimistic that the govt will raise the ex-GSP LPG price than it was three months ago (following the successful cooking price rise in Sept). Regardless of price de-control, the prospects for FY14 earnings are good (albeit moderate—we expect 6% YoY growth), buoyed by gas sales and GSP output. Also, listing the power flagship on the SET would boost the bottom-line. As such, we think the current valuation improves the risk-reward proposition to re-entry (FY14 PER of 8.1x, PBV of 1x), given that the LPG and NGV price caps are already priced in. Our PTT SOTP valuation (a 15% discount applies to the stock prices of its subsidiaries) gives a YE14 target price of Bt326.
Gassing up and GSPs resuming full capacity runs in FY14
The fifth GSP unit is currently running at about half its nameplate capacity and is targeted to ramp up to full capacity by April next year. That would almost normalize production volume at PTT’s GSP units, so we anticipate 6-7% YoY output growth to 6.3-6.4mt in FY14. As the fifth unit typically consumes 200mmcfd of natural gas and there is an aggregate 3,100MW of gas-fired IPP and EGAT plants (under the current PDP version) to start operating next year, our bottom-up analysis indicates that the firm is likely post gas sales expansion of at least 10% YoY to 5,100mmcfd for FY14.     
Loss on NGV and LPG on the downside
PTT said that in FY14—under the worst-case scenario—the FY14 losses on LPG and NGV sales would total about Bt30bn (Bt10bn on LPG and Bt20bn on NGV), about the same level as for FY13. Demand for LPG is tending to decline, as the govt has clamped down on cross-border smuggling. The ex-GSP LPG price could possibly rise in FY14, but there is as yet no exact timeline. The govt has committed to following the Sept cooking gas price rise with more increases.
Meanwhile, the losses on NGV will be limited, given that only a few new NGV stations are planned to open next year. Although the firm downplayed the chances of NGV price deregulation (once the govt-imposed price cap expires at YE13), it believes price de-control will come after the ex-GSP LPG price has been increased.   
Listing GPSC to unlock value
GPSC is now in the final stages of restructuring as PTT group’s power generating flagship—the process is targeted to be completed by YE13, in which case it could list on the SET by 2Q14. Under the flagship firm, electricity generating and steam capacity totals 1,357MWeq, which will rise to 2,531MWeq once the restructuring process is completed. PTT targets 6,000MWeq by FY23. GPSC aims to expand in neighboring countries, particularly Myanmar, where there is a severe electricity shortage. Power usage in that country is currently 3,000MW, only one-ninth that of Thailand. PTT is studying the feasibility on 3-4 projects. The potential projects range 100-500MW in size.