Energy : Petrochemical

Energy : Petrochemical

- Political unrest triggers further fund outflow, weakening Baht beyond expected
The Baht has been depreciating over the past two months, softening
averagely by 6.7% to B33.08/US$, reflecting an outflow of foreign fund
from Thailand to other countries that have given higher returns. Moreover,
the inconclusive political problem, starting since October 2013, has not
only hindered the government’s investment but also affected domestic
private investment. Accordingly, we slash our FY2014 GDP growth forecast
from 4.3%yoy to 3.3%yoy. In addition, it is possible that the MPC might
cut the policy interest rate by another 0.25% at its coming meeting. All
these are key factors making the Baht weaken continuously. Therefore, we
revise our Fx rate assumption to B33/US$ from B31.5/US$ previously.
- Up Fx rate assumption to B33/US$, beneficial for profit in FY2014-2015
The rapidly weakening Baht will be beneficial for net profit of the energy
and petrochemical sector as more than 90% of its income but only 60-
70% of its cost is in US Dollar. Consequently, we revise up 2014-2015
earnings forecast of stocks in the sector by 3.44% and 2.97%,
respectively, in order to reflect the weaker-than-expected Baht. Under the
new forecast, the sector’s net profit in 2014-2015 would grow as much as
19.8%yoy and 8.6%yoy, respectively. The profit growth of each company
would be quite close to one another’s and the sector’s average. However,
the notable profit growth in 2014 would not only result from the weak Baht
but also higher sales volume from new project (PTTEP) and full resumption
of refineries, gas separation units, and petrochemical plants after the
planned and unplanned shutdowns in 2013 (PTTGC and PTT).
- NEUTRAL. PTTEP and PTTGC are top picks
We assign NEUTRAL for the sector. Top picks are PTTEP([email protected]) and
PTTGC([email protected]) as their profits are projected to show the largest
growth among peers, respectively at 19.8%yoy and 25.3%yoy and their
2014 PERs are only 8.3x and 9.1x, lower than the regional average of 12x.
Moreover, the share prices have declined significantly, against recovering
regional peers as a response to the reviving world economy, so PTTEP and
PTTGC are interesting for investing. Furthermore, they are also lowly
sensitive to domestic political factors.