PTT

PTT Plc

Egypt gas pipeline likely to resume normal transmission
Previously in early 2011, PTT wrote off B5.8bn of its assets in Egypt gas
pipeline (EMG), of which the operation had been disrupted by an
explosion, while the remaining asset value of B7.5bn was projected to
be written off as well if the pipeline was not used any longer. However,
PTT revealed recently that the pipeline might be used again for
transmitting gas from Israel to an LNG factory in Egypt, so it might not
have to do the remainder of the write off. Moreover, if the pipeline can
resume a normal operation, the company might be able to book a
reversal of the asset impairment, which means its profit would increase
by B1.62/share (net after tax) or 4.3% of FY2014 net profit. This is a
future positive factor that we have still not included in our forecast. For
the core business, PTT’s management maintained its outlook, projecting
Dubai crude oil price at US$100-105/barrel on average and Singapore
GRM at US$5-6/barrel. For the petrochemical business, olefins spread
tends to increase, whereas aromatics spread would weaken from 2013.
In addition, the company is going to list two subsidiaries, GPSC (a
flagship of PTT’s power plant business) and SPRC, on the SET in 2014.

- 1Q14 profit to rebound qoq
We project the profit in 1Q14 to rebound from 4Q13. Profit from the gas
separation plant is anticipated to increase following rising profit prices,
while shared profit from subsidiaries is also believed to improve from
4Q13. Sale volume of PTTEP would increase after the company could
recognize Natuna Sea A project for a full quarter. Meanwhile, the
refinery business will benefit from rising GRM. Likewise for the
petrochemical business, olefin spread is projected to increase further,
reflecting reviving demands. For FY2014 outlook, continuous profit
growth of 14.2%yoy is foreseen after all units of PTT run at their
complete capacity, while olefin products would also increase following
rising spread.

- Buy. P/E ratio far below regional peers’
2014 fair value (DCF and sum of parts) is B368. We reiterate BUY for its
24% upside and FY2014 P/E ratio of 7.8x (versus regional average P/E
ratio of 10x).