Thai Oil

Thai Oil Plc (TOP) 

- 2Q14 profit declines as expected 

TOP posted 2Q14 net profit at B2.1bn, declining 17.4%qoq, close to our projection. Negative factors in 2Q14 are 1) a major shutdown of TOP’s refinery and aromatics factory, resulting in lower utilization rate, 2) a 13.7%qoq decrease in the market GRM, and 3) continuously decreasing aromatics spread due to rising supply. However, the factor sustaining the profit in 2Q14 was stock gain of US$1.4/barrel or B1.1bn. Overall, 1H14 net profit was B4.6bn, growing 65.4%yoy and accounting for 60% of our FY2014 forecast.  

- Profit to make year’s low in 3Q14 

We maintain our FY2014 profit forecast. The profit might hit the year’s low in 3Q14 mainly because the above-mentioned 40-day major turnaround of the refinery during the quarter will lower the utilization rate. Another negative factor is the market GRM that would weaken on seasonal effect and from the sluggish Chinese economy. The aromatics business would remain dull; new Px supply of 4 million tons a year is projected in 2H14, mounting the total new supply in 2014 to 8 million tons a year, while the average demand growth is only 2.4 million tons a year. Overall, FY2014 profit would decrease 25.3%yoy. 

- Hold for dividend 

2014 fair value (DCF) is B56. We recommend only holding TOP for its dividend, which can be expected at 3-4% p.a. in 2014-2015 (paying semiannually).