The Bangchak Petroleum

The Bangchak Petroleum Plc (BCP)

- Upstream investment not worse as expected
Two main issues were discussed at the analyst meeting yesterday. 1)
PTT has planned to sell its entire shareholding of 27.22% in BCP in order
to reduce its monopoly in the refinery business. However, if the share
selling does occur, BCP still believes that it would not affect its business
operation since their current business relationship is mostly in a form of
technology and knowledge exchanges and combining raw material
orders for lower production cost, which have had insignificant benefit for
the current operation of BCP. 2) Regarding the penetration into an
upstream business of petroleum production and exploration which has
been objected by shareholders and investors, PTT explained that the
investment would help strengthen domestic crude oil supply for BCP’s
refinery in the long run. It is preliminarily believed that PTT will join with
a company that has an expertise and experience in this business.
However, with the B5bn cash in hand, BCP’s cash flow from operation of
B5bn a year on average, and low net D/E ratio of only 0.22x, PTT has a
potential to invest in the business without an impact on BCP’s financial
status.
- Power business: Hero of 2014
We project normalized profit in 2Q14 to weaken from 1Q14 due to a 46-
day planned shutdown (May 1 to June 15, 2014), which is longer than a
usual overhaul shutdown of 30 days since the company will have the
fire-damaged refining tower changed, which will also increase its refining
capacity from 80,000 to 100,000 barrels a day. The shutdown in 2Q14
will decrease BCP’s utilization rate by 43.9%qoq to only 55,000 barrels a
day. Nonetheless, this negative factor will be negated by the recognition
of income from all units of the solar power plant phase 3 with total
capacity of 48 MW since late April 2014 onward, which is a few months
earlier than projected, and special insurance claims of B500m for the
property damage (still not included in our forecast). Accordingly, 2Q14
net profit would drop only slightly from 1Q14.
- Dividend yield of 5-6% p.a.
2014 fair value (DCF) is B36. We reiterate to buy BCP as the profit in the
next couple years would show continuous and more stable growth after
the company has been able to recognize more income from the solar
power plant which has certain profit as a result of the power purchase
contract. Moreover, dividend yield of 5.4%p.a. can be expected.