PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

- 4Q13 profit to drop only 22.9%qoq, thanks to refinery business
We estimate 4Q13 net profit at B7.4bn or a decline of 22.9%qoq, better than our
projection, thanks to the refinery business. Market GRM has dropped only 3.7%qoq
to US$3.35/barrel and an impact from the decreasing GRM on PTTGC is insignificant
since PTTGC’s product that is based on benzene price, which is reformate, comprises
only 10% of its total products, and most of the reformate produced is used as
feedstock for the petrochemical business. Moreover, in 4Q13 the company would
book a stock gain of US$1.4/barrel, though falling 51.7%qoq. On the other hand,
profit from the aromatics business is projected to decrease following Px-condensate
spread that contracted 1.4%qoq to US$504/ton. The factor to depress 4Q13 profit
would be a Fx loss of around B950m from 4.67%qoq depreciation of the Baht.
However, the olefins business would play an important role in alleviating the profit
fall. In 4Q13, PTTGC’s olefins plant have been able to resume its utilization rate of
90% after the GSP#5 could feed raw material at 50% of its capacity and LDPE plant
has resumed its 76% capacity after stopping in 3Q13. Furthermore, average spreads
of olefins products - HDPE, LLDPE, and LDPE, have widened by 3.7%qoq, 6.0%qoq,
and 10.6%qoq, respectively. Overall, FY2013 net profit would be B33bn, decreasing
3.9%yoy, 11.8% better than our projection.
- Olefins, main business to boost 2014 profit growth to 12%yoy
We project the profit in 1Q14 to grow from 4Q13 mainly because of the refinery and
olefins petrochemical businesses. For the refinery business, GRM is projected to rise
on seasonal effect, reflecting from Singapore GRM since the beginning of 2014 until
present that stands at US$6.5/barrel on average, up 52.5% from 4Q13 average.
Moreover, many refineries worldwide would conduct an annual shutdown in late
1Q14 after running at their full capacity during winter, so some supplies would
disappear. Likewise, spreads of olefins products since the beginning of the year have
increased averagely by 5% from 4Q13, reflecting reviving demands. FY2014 profit is
expected to grow 12.0%yoy due to full resumption of every plant after the planned
and unplanned shutdowns in 2013. Furthermore, as we project olefins petrochemical
spread to stay only flat from 2013 under a conservative method, there is significant
upside that the spread might increase from the current forecast since a new supply
of olefins in 2014 and 2015 would increase only 460,000 and 450,000 tons, versus
five to six million tons a year of demand growth, thus likely benefiting the product
price and spread in the next couple of years.
- Buy. 2014 PER is only 8.7x, lower than regional average
2014 fair value (DCF) is derived at B91.78. We reiterate to buy PTTGC and select it
as a top pick of the refinery-petrochemical sector for its high upside of 27%. 2014
PER is only 8.7x, lower than the regional average of 12x. Dividend yield can be
expected at 5% p.a.