Thai Oil

Thai Oil Plc

- Thai Oil fell 7% on Friday and has declined 19% over the last month, while the SET
has declined 0.5% and 10%, respectively. Following our review of the sell-off and
with an updated look at both valuation and growth, we consider the recent sell-down
a buying opportunity. Re-iterate OP.

Impact

- Baht exposure. Political uncertainty is weighing on Thailand's currency. TOP's
reported earnings are exposed to baht weakness. This relates to c.US$1.7bn worth
of US dollar debt. While baht-denominated operating earnings benefit from baht
weakness, TOP's USD debt leaves its bottom line negatively exposed. We expect
TOP to report an FX loss of Bt2.2bn in 4Q13. We also note that TOP’s reported EPS is
the most exposed to baht weakness vs Thai energy sector peers.

- Wrong to panic. First, these are reported losses not cash losses. Second, with
Bt57bn (equivalent to US$1.7bn) in cash and a net debt to equity ratio of 0.08x, TOP
has a measure of financial flexibility. Third, repayment of US$700m by mid-2015 at
the latest will bring TOP back to a desired “naturally” hedged position.

- Growth outlook intact. Even on weaker baht assumptions, we continue to see
upside risks to 2014 EPS from TOP’s tax-free refinery upgrades. The launch of a
100k tpa linear alkyl benzene facility in 2015 will be followed with the addition of 2
small power plants with a combined 220 MW.

- Margin tailwind. Asian complex refining margins are trending upward in line with
seasonal trends. While we maintain a relatively cautious stance on refining, we
continue to expect YoY improvements in 2014. Longer term, oversupply concerns
remain intact. We consider our 2014 TOP realized refining margin forecast of just
US$5.1/bbl achievable.

Earnings and target price revision
- We trim our EPS forecasts by 5% and 7% and reduce our target price from Bt74 to
Bt71 to take into account our new foreign exchange assumptions.
Price catalyst
- 12-month price target: Bt71.00 based on a DCF methodology.
- Catalyst: Refining margin rally, Thailand political resolution.
Action and recommendation
- Maintain OP.