Petrochemical & Refinery

Petrochemical and Refinery

- Low Naphtha price boosts olefins spread
Last week, Naphtha price dropped by 1.5%wow to US$930/ton, as global crude oil price
fell as a result of projection on delayed global economic recovery and relieved turmoil in
the Middle East. Moreover, olefins product price has stayed high, unlike Naphtha price,
thus olefins spread (PTTGC, IRPC) has remained outstanding. HDPE-Naphtha spread has
widen by 2.2%wow to US$640/ton, and LDPE-Naphtha spread has increased by
1.9%wow to US$740/ton. Similarly, spreads of specialty downstream products, PPNaphtha,
PS-Naphtha, ABS-Naphtha (IRPC's main products, making up 30-40% of total
sales volume) have risen by 2.4%wow, 1.6%wow and 1.5%wow to US$590/ton,
US$875/ton and US$955/ton, respectively. For aromatics products (TOP, PTTGC, ESSO,
IRPC), only Bz-Naphtha spread has increased slightly by 0.3%qoq to US$410m/ton,
whereas Px-Naphtha spread has declined by 1.6%qoq to US$383/ton as Px product
price has dropped by 1.5%qoq to US$1,300/ton as a result of gradually increasing
supply. The decrease in Px price has boosted PET downstream products spread (IVL).
PTA-Px spread (30% of total sales volume) has increased by 8.8%wow to US$166/ton,
whereas PET-PTA-MEG spread has contracted by 4.8%wow to -US$84/ton, as PET price
has dropped by 0.9%wow to US$1,100/ton. For PVC downstream products (VNT, TPC),
PVC product price has stayed at US$1,030/ton, contrast to ethylene price that has
dropped by 0.7%wow, boosting PVC-ethylene and PVC-Ethylene+Caustic Soda spread
by 1.5%wow and 2.4%wow to US$330/ton and US$640/ton, respectively
- PTTGC and IRPC benefit most
We project petrochemical sector's 1Q14 net profit to rebound from 4Q13. Petrochemical
spread has been increasing, especially olefins spread, benefiting PTTGC and IRPC. The
sector's FY2014 net profit is expected to leap by 17%yoy, mainly from an increase in
PTTGC's sales volume after planned and unplanned shutdown of PTTGC's factories had
passed in 2013. Under a conservative assumption, FY2013 olefins spread is expected to
stay unchanged from 2013, but likely to be revised up because a new supply of olefins is
predicted to increase only 500,000 tons, while demand is projected to grow by 4-5
million tons/year in the next couple years.
- Top pick is PTTGC
We recommend "OVERWEIGHT". The sector's top pick is PTTGC for 25.3%yoy FY2014
EPS growth, 8.7x FY2014 PER (versus the sector's average of 11.6x) and 5%p.a.
dividend yield. Share price might fall for a short term because of the rumor that SCC
wants to sell all of PTTGC's shares after SCC sold 20 million shares of PTTGC and still
held 80 million in 4Q13. However, the amount of shares sold by SCC was only 1.8% of
PTTGC's total shares. Thus, it is advisable to accumulate when price weakens due to the
rumor.