Energy

Energy
Upgrade to OVERWEIGHT
- We upgrade our investment recommendation from NEUTRAL to OVERWEIGHT as
global economy, especially the US, Eurozone, and China which are major
consumers, tends to recover continuously. Moreover, in the short term, many
countries would launch economic stimulus packages e.g. China, which would boost
demands for commodities e.g. petroleum and petrochemical. Furthermore, since
entrepreneurs had very low petroleum and petrochemical stockpile, they will have
to start restocking the products again. This is a key factor to boost the overall
product prices. In addition, the unrest situations in the world’s major oil exporting
countries and the political problems might make the oil price rebound from present
because the market has been worried about decreasing supplies from the
countries affected or difficulty in oil transportation if a war erupts. Our assumption
for Dubai crude oil price in 2014 at US$100/barrel is still lower than the average
price year-to-date and average price in 2013 at US$104 and US$105/barrel,
respectively.
- PTT and IRPC to grow strongly in 2014
We project the profit of the energy sector in 1Q14 to improve from 4Q13,
especially PTT and IRPC which would exhibit a turnaround. For PTT, 1Q14 profit
from the gas separation business would improve following rising product prices,
while its subsidiaries would also revive e.g. petroleum production and exploration,
refinery, and olefins petrochemical. The profit in FY2014 is projected to rebound
14.2%yoy from sales volume from the gas separation plant after GSP#5 resumed
its operation for a full year. Moreover, petroleum business (PTTEP), the sales are
projected to increase, while olefins sales (PTTGC and IRPC) would also rise as
GSP#5 could supply more feedstock to the olefins factory and LDPE factory could
resume its operation for a full year. Moreover, spreads of olefins product would
remain in an uptrend in 2014. IRPC would fully benefit from the issue, so its profit
would skyrocket 322%yoy in 2014.
- Top picks are PTT and IRPC
We select PTT(FV@B368) and IRPC([email protected]) as top picks of the sector. PTT’s
valuation is very cheap, with P/E ratio of only 7x, the lowest among peers,
whereas its fundamental factors are strong. IRPC is also a shooting star from its
turnaround in 2014.