Energy Sector

Energy Sector
- Oversupply puts oil price to four-year low
Dubai crude oil price on October 13, 2014 was US$87.68/barrel, falling
to a four-year low mainly from an oversupply problem. World’s major oil
exporters in the Middle East have resumed producing at a full capacity,
so the production capacity of the OPEC made a new high for the first
time since November 2012, while the demand has been weak as a
result of a slow economic recovery in many countries worldwide.
Recently, the IMF has cut the world GDP growth forecast for the third
time of the year to 3.3% in 2014 and 3.8% in 2015.
- Dubai price assumption cut to US$90
We revise down our assumption for Dubai crude oil price from US$100
to US$90/barrel since 2015 onward to reflect the current oil price
downtrend. This directly poses a negative impact on the oil companies,
both PTTEP and PTT, because petroleum selling price is directly
proportional to global crude oil price. In addition, we slash 2014
earnings forecast to reflect extraordinary items in the past nine months.
For the table of the forecast and fair value revision, see page 3.
- New fair values of PTTEP, PTT are B170, B354
We maintain NEUTRAL for the sector. Under the new forecast, 2014 and
2015 fair value of PTTEP is B170 and B182 and 2014 and 2015 fair
value of PTT is B354 and B405, respectively. Buy on weakness is
recommended. The share prices possibly have declined to partly reflect
the negative factors, while 2015 profit can still grow from new projects.