PTT Exploration and Production

PTT Exploration and Production Plc (PTTEP)

- Fx factor to make 1Q14 profit surge
We project 1Q14 net profit at B12.8bn, leaping 72.4%qoq because Fx
loss has decreased 68.8%qoq to only B653m. Yet, the normalized profit
would stay flat qoq although average petroleum sale price is projected to
increase 1.6%qoq to US$65.5/barrel following gas sale price that would
increase 3.4%qoq to US$7.9/million BTU. At the same time, crude oil
price is anticipated to drop slightly by 0.9%qoq to US$100.5/barrel,
while overall sales volume is projected to stabilize at 299,000 barrels a
day. However, the increased income would be negated by depreciation
that is projected to rise 13.8%qoq to US$19/barrel from recognition of
more sales volume from Montara project that has high production cost
and an extraordinary expense of B825m (net after tax) from a shutdown
of the unsuccessful H5 well that had been drilled to replace the leaked
well. Overall, 1Q14 net profit is projected to make up 17.3% of our
FY2014 forecast.

- New projects still boost 2014 profit growth
We maintain our profit forecast for FY2014, projecting the net profit to
make a new high by year with the growth of 20.1%yoy. On the other
hand, negative factors that would depress the sales volume below the
forecast by 10,000 barrels a day are 1) Zawtika project in Myanmar
(M9) that had to delay a commercial production of natural gas for selling
back to Thailand (240 million cubic feet a day) for two months from 1
April 2014 previously scheduled and 2) the cancellation of drilling of the
H5 well of Montara project, which would make total production target of
Montara decrease around 20.8% to only 19,000 million barrels a day in
2014. Nevertheless, the negative factors would be compensated by the
company’s acquisition of two projects from Hess Corporation in
Thailand: 1) Sinphuhorm (Hess holding 35% stake) with 100 million
cubic feet a day capacity of natural gas production and 2) Pailin (Hess
holding 15% stake) with 360 million cubic feet a day capacity of natural
gas production, which would help increase total sales volume of PTTEP
by 10,000 barrels a day as well.
- Buy
We recommend buying PTTEP. 2014 fair value (DCF) is B191.50/share,
implying 21% upside. 2014 P/E ratio is only 9.3x, still lower than the
regional average of 10.8x.