Bangchak Petroleum

Bangchak Petroleum   

Above estimates
BCP reported a 4Q13 net profit of Bt688m, down by 40% YoY and 49% QoQ. Stripping out an FX loss of Bt530m, Bt342m in gains from inventory and oil hedging, a Bt5m loss on asset disposals and the Bt58m net reversal an asset impairment, 4Q13 core earnings would be Bt822m, down 20% YoY but up 407% QoQ. Net profit was 24% above our estimate and 32% higher than the consensus, due mainly to a lower-than-modeled effective tax rate and extra gains. For FY13, BCP posted a bottom-line of Bt4,653m, up 9% YoY, and core earnings of Bt3,366m, up 106% YoY.
Results highlights
The key factors behind the 4Q13 profit dive were: 1) weaker market GRM (down by 55% YoY [but up 2% QoQ] to US$4.8/bbl), 2) slimmer marketing margin (down by 26% YoY and 8% QoQ to Bt0.49/liter), 3) a lower QoQ inventory gain (US$2.1/bbl against $3.2/bbl in 3Q13) and 4) a smaller YoY oil hedging gain ($1.19/bbl against $1.20/bbl in 4Q12). Note that the solar power unit made a bigger QoQ and YoY profit contribution for the quarter. Furthermore, the crude run increased by 19% YoY and 1% QoQ to 101KBD, while marketing sales volume rose by 8% YoY and 7% QoQ to 432m liters/month.
Outlook
We expect BCP to post strong QoQ core earnings growth (but a YoY decline) in 1Q14, even though the prevailing political chaos may make for softer QoQ marketing sales volume. The driver is a greater market GRM, brought about by seasonally high demand for refined petroleum products during the first-quarter coupled with supply outages in North America (due to freezing cold weather)—the benchmark Singapore GRM in 1Q14-to-date is up 55% QoQ (albeit down 25% YoY) to US$6.3/bbl.
What’s changed?
Our FY14 net profit forecast of Bt5,404m stands unchanged.
Recommendation
A seasonal 1Q14 spike in GRM and expectations of QoQ core earnings growth should boost the share price in the short-term. Moreover, BCP’s earnings profile is smoother than any of its refining peers, given its unique business model (refinery+retail marketing+solar power).
Its valuation remains undemanding—an FY14 PER of 8.0x, discounts to both its long-term average of 10.2x and to the regional mean of 12.6x—and it offers an FY14 dividend yield of 5.6%, far above the Asian refinery average of 3.3%. BCP announced the dividend for its 2H13 operation of Bt0.75/share, implying annualized dividend yield of 4.8% for FY13. The XD date will be on 3 March 2014 and the payment date will be on 23 April 2014.