PTT
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Hang in there, things will get better! BUY
PTT Plc
Investment view. Although share price has risen 25% over the past six months, we do
not tone down our optimism. We believe PTT has a good outlook, particularly with
crude oil prices coming down, making it easier for the government to gradually
remove the domestic fuel price subsidy, a huge plus for PTT after years of operating
losses simply because of the regulated LPG and NGV prices. Further, lower oil price is a
positive for the economy and energy demand, which appeared to slow in 9M14 as gas
sales edged up only 0.5% YoY. PTT will also gain from its divestment of non-core assets,
giving it more cash. We BUY with TP of Bt406; a catalyst is NGV/LPG price adjustment.
Loss from NGV to decline from Oct 2014. PTT’s burden from selling NGV at a loss
will begin to lessen from Oct 2014 after NGV price was raised by Bt1/kg to Bt11.50/kg
for all users except public transportation (~25% of total sales volume), which is still at
Bt8.50/kg. Still, this price it remains well below PTT’s operating cost of Bt15.50-16/kg.
We estimate the Bt1/kg increase in price will shave Bt500mn off its NGV losses in 4Q14
from the normal Bt5bn/quarter. PTT’s NGV network expansion will come to life again if
NGV price begins to reflect actual investment cost.
BCP sale finalized this year. PTT’s plan to divest non-core assets is proceeding as
planned, with the sale of BCP expected to be concluded by the end of this year.
Management did not disclose any transaction details but we believe the buyer of PTT’s
27.22% interest in BCP will be selected soon. BCP’s book value as of Sep 2014 was
Bt9.9bn, implying Bt26.58/BCP share compared with current price of Bt35.5/share. For
each Bt1/BCP share above book value PTT gains Bt300mn (after tax) or Bt0.1/PTT share.
May spin off retail business. Management confirms it does not intend to sell its
retail business but indicated it may spin off the business to get the market to give it
more value, as was done recently by an integrated oil company in China. Right now,
the business is hidden under the oil business and thus overlooked by the market. As a
first step, PTT included non-oil products (e.g. coffee house) in its petrol stations to act
as a magnet. This retail network is now expanded to outside its gas stations as well
and the EBITDA contribution rose 20.3% YoY in 9M14.
4Q14F outlook. We expect operating profit to soften in 4Q14 on seasonally low
demand for gas and lower crude oil price, which will continue to erode earnings of its
oil refining and petrochemical associates. The important factor is the lower loss from
NGV after the raise of Bt1/kg in selling price.
Valuation and risks. We reaffirm our BUY with price adjustment for LPG and NGV as
a near term catalyst. Our sum-of-the-parts TP is kept at Bt406/share with upside from
further adjustment of NGV price. Each Bt1/kg raises fair value by Bt6/share. Another
driver is the potential price adjustment for LPG ex-GSP price to reflect operating cost.
Key risks are volatile oil price and weaker than expected performance of associates.
