Thai Oil

Thai Oil Plc (TOP)

- GRM good enough to compensate for dreadful aromatics business
Overall, TOP’s business in 2014 is likely to depend on refinery business.
Compared with a decrease in supply as a result of the permanent shutdowns
of refineries in China, Japan, and Australia, new supply of finished oil from
the new refineries increases by only 76,000 barrel/day, while demand grows
by 950,000 barrel/day. Thus, FY2014 GRM is likely to rise significantly from
2013. For the worst-case scenario, if demand grows less than expected, GRM
is expected to stay close to 2013 at the average of US$5/barrel. Profit from
aromatics and lubricant businesses is projected to decline due to the new
supply. For aromatics business, Px spread is expected to fall from
US$340/ton. As there would be new supply in 2H14, an oversupply of Px is
foreseen in next few years (according to the statistic, the lowest Px spread
was US$250/barrel). On the contrary, Bz spread is projected to stay close to
2013 at US$300/ton, as increasing demand in US would absorb the excess
supply in Asia (US has replaced Bz with shale gas as the raw material for
olefins production, so there is no new Bz supply). TOP’s investment plans in
2014 are as follows: 1) Renovation of the refinery in Myanmar (a country
with good potential) in order to increase its supply to meet the demand. 2)
Joint venture with Pertamina; investment project on adding value of wax
products (need to be imported) for the factory in Indonesia. Both projects
would be a long-term upside for TOP.
- 1Q14 earnings to rebound to net profit
We project 1Q14 net profit to rebound from 4Q13, as GRM is projected to
rise on seasonal effect, reflecting from Singapore GRM since the beginning of
2014 until present that stands at US$6.6/barrel on average, increasing by
54% from the average of US$4.3/barrel in 4Q13. Moreover, many refineries
worldwide would have an annual shutdown in late 1Q14 after running at their
full capacity during winter, so some supplies would disappear. 4Q13 net loss
was B14m, close to our expectation. Market GRM fell by 62%qoq and stock
gain dropped by 63%qoq to B1.2bn. Also, Fx loss increased from B249m in
3Q13 to B1.8bn. FY2014 normalized profit is expected to drop by 7%yoy, as
TOP would undertake a 55-60 days major turnaround of CDU 3 unit with a
production capacity of 165,000 barrels a day during June-July 2014.
However, FY2015 normalized profit is expected to rebound by 11.3%yoy.
- PTTGC to outperform better
We derive end-2014 fair value (DCF) at B68/share. We reiterate “BUY” as
2H13 dividend yield is as high as 2.8% or B1.5/share. XD date is 26
February 2014, and dividend will be paid on 30 April 2014. However,
PTTGC’s FY2014 earnings result is likely to be stronger, so it is more likely to
outperform than TOP.