Thai Oil

Overseas investment for higher value in long run

Thai Oil Plc (TOP)

TOP is currently looking for overseas expansion in order to boost its

growth and add its value in a long run, starting in Myanmar and

Indonesia (high potential for growth). However, TOP's profit is

expected to weaken in 3Q14. We reiterate HOLD for short-term

investment.

- Looking for overseas investment

According to the analyst meeting last Friday, TOP has been emphasizing on

investment in Myanmar and Indonesia. In Myanmar, TOP has planned to

participate in a bid for an upgrade project of a refinery with 20,000

barrel/day capacity in Yangon and start a new greenfield refinery project;

the conclusion would be made in 1Q15. In Indonesia, Pertamina

(Indonesia's state oil company) has invited PTT (TOP is a main powerhouse

for PTT’s refinery business) to join an upgrade project of five refineries in

Indonesia to increase supply to meet the demand. TOP and Pertamina are

currently studying for feasibility of the project, likely to take some time.

This is the first step for TOP to add value in a long run by investing on

overseas refineries.

- Profit to make year’s low in 3Q14

2H14 net profit is expected to weaken from 1H14. TOP's profit is expected

to make the year's lowest in 3Q14. A refinery will undergo a 40-day major

turnaround in 3Q14, and market GRM would drop as a result of seasonal

effect. Although aromatics business already passed its lowest in April,

aromatics spread would remain low in 2H14 because of 4 million ton/year

new Px supply. Overall, FY2014 earnings are projected to drop 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).