PTT Exploration & Production

PTT Exploration & Production (PTTEP)

- Lower production target in 2014
According to the analyst meeting, production and sales volume targets in
2014 are revised down because some projects would not be able to produce
as much as previously expected. 1) Zawtika project in Myanmar might start
its commercial run later, postponing from early-2Q14 to late-2Q14 as a
result of the storm at the Gulf of Martaban. 2) Montara project in Australia
was affected by the storm earlier in 2014. Thus, its capacity expansion plan
(from 10,000 barrel/day to 30,000 barrel/day) would be delayed from March
2014. 3) As a result of the abnormally cold weather and the political turmoil
that has affected the economy, PTT would buy lower amount of natural gas
from PTTEP; from higher than daily contract quantity (DCQ) to lower than
DCQ. 4) KKD's assets were swapped, so the capacity is reduced (100% of
the project acquired by PTTEP is under development). We revise down
FY2014 net profit forecast to reflect the negative factors. Under the new
forecast, FY2014 net profit is projected to grow by 20.1%yoy as a result of
depreciating THB (under the assumption of B33/US$) and additional
production capacity from Natuna Sea A (220 million cubic feet/day of natural
gas and 2,350 barrels/day of crude oil) and Zawtika project in Myanmar (300
million cubic feet/day of natural gas) from 2H14 on.
- Maintain long-term target
PTTEP maintains its investment strategies to raise its capacity to 600,000
barrel/day within 2020 by the following methods: 1) maintaining the capacity
of its current active projects; 2) exploration and development of new
projects; and, 3) acquisition of new businesses (M&A), focusing on active
projects to make spontaneous profit. Currently, PTTEP has participated in the
auction for assets of Hess Corporation; Hess is selling two projects in
Thailand: 1) Sinphuhorm (Hess holding 35% stake) with 100 million cubic
feet/day capacity of natural gas production, and 2) Pailin (Hess holding 15%
stake) with 360 million cubic feet/day capacity of natural gas production, of
which the conclusion would be made within 1H14. Currently, PTTEP has
US$2bn cash flow and US$4bn/year average operating cash flow with 0.34x
debt-to-equity ratio. Overall, PTTEP would still have enough cash flow to
invest on new projects without an effect on its financial status.
- "BUY". PER lower than regional average
Under the new forecast. We revise down end-2014 fair value (DCF) from
B212 to B191.50, implying 26% upside. We reiterare "BUY". FY2014 PER is
at 8.9x, lower than the regional average PER of 10x.