PTT Global Chemical

PTT Global Chemical Plc (PTTGC)

- Olefins: growth driver for next couple years
According to the analyst meeting, PTTGC would proceed with its capacity
expansion and product value-adding strategies, which would start generating
revenue since 2H14 and throughout 2015 – 2017. The long-term business
outlook is still in line with our previous forecast that olefins would be a key profit
driver in the next couple years. HDPE, LDPE, and LLDPE spreads are now in an
uptrend since olefins supply in 2014-2015 has increased at a slower rate than
the average demand growth of 5-6 million tons a year. Likewise for the refinery
business, GRM in 2014 would increase by 6.0%yoy; contributing factors are a
delayed commercial run of a refinery in China with capacity of 760,000 barrels
per day to 2015 and a permanent shutdown of refineries in Japan and Australia
with combined capacity of 750,000 barrels a day in 2014. However, the
aromatics business, Px in particular, would be in a downtrend due to
significantly increasing supply of 7 million tons in 2014, versus the demand
growth of only 3 million tons.
- Profit to surge aggressively in 2Q14
We project to see the profit growth of around 30-40%qoq to B8-9bn in 2Q14
after PTTGC had bottomed out in 1Q14, thanks to the following reasons: 1) the
olefins plant has resumed its operation after the shutdown in 1Q14, with the
utilization rate predicted to increase to 90%; 2) the GSP#5 could resume its
100% operation since early April 2014, up from 50% previously, allowing PTTGC
to use natural gas as raw material in a larger proportion and thus benefiting the
spread; 3) olefins spread would remain in an uptrend as a result of gradually
increasing demand from the world economic recovery; 4) GRM would remain
high on seasonal effect.
- Good time to accumulate
2014 fair value (DCF) is B87. We reiterate to buy PTTGC. The previous share
price decline likely has already reflected negative factors, while 2014 P/E ratio is
only 9.2x, lower than the regional average of 13.1x. Dividend yield can be
expected at 5% p.a.