PTT

PTT Plc

- Many factors weakens share price
PTT's share price has plunged nearly 4% to B292 as a result of the following
rumors: 1) removal of PTT board chairman (Parnpree Bahiddha-Nukara) and
the whole board of director; and 2) the energy reform previously announced
by the National Centre for Peace and Order (NCPO). According to our
interview with PTT executives, neither Parnpree nor any board of director
members would be removed in near future. PTT is a listed company on the
Stock Exchange of Thailand. Removal of board of director members takes
time because it depends on shareholders' meeting and its own rules and
procedures.
- Fundamental factors not affected
We project that PTT's fundamental factors would not be affected by the
rumors on removal of PTT board chairman or the energy reform (PTT has
been criticized that the price has far exceeded the global oil price). Current
retail oil price comprises refinery transfer price (depends on global oil price;
PTT benefits from this) and taxes (30-40% of retail oil price at petrol station;
the government benefits from this). The government maintains diesel price
at B30/liter. If oil price needs to be restructured, we expect taxes to be
lowered. Even though income from energy business makes up 70-75% of
PTT's total income, PTT's earnings before interest and taxes (EBIT) from
energy business makes up only 5-8% of PTT's total profit; reflecting low
profit from energy business. Currently, PTT has to sell LPG (from gas
separation plants) at US$330/ton (lower than global LPG price at US$700-
800/ton).
- Great entry point
We maintain FY2014 fair value (DCF) at B360. We reiterate to buy; share
price has been lowered by rumors, so this is a good entry point. Expected
P/E ratio of 8.3x is the lowest among peers (versus the sector's average of
11.5x). Its dividend yield can be expected at 4-5%p.a.