Energy

Share prices fall beyond actual oil price decrease Neutral

Energy

- Provision for impairment of oil business asset, another threat for PTTEP

Global crude oil prices in three main markets have continued to decline and

made a five-year low after OPEC decided to maintain its output target in

2014. Dubai crude oil price stood at US$63.27/barrel, Nymex crude oil price

at US$61.56/barrel, and Brent crude oil price at US$64.31/barrel. The

average Dubai price we used in our forecast is US$99/barrel YTD, which is

close to our assumption of US$100/barrel, while the global crude oil price

tends to remain low in 1H15 before gradually improving in 2H15 as a result

of decreasing supply from high-cost producers. Accordingly, we revise down

our crude oil price assumption to US$75/barrel in 2015 and the following

years, versus US$90/barrel previously. This has also led to concern about

provision for impairment of asset of an overseas oil exploration and

production business of PTTEP (Montara and Oil Sand projects), which might

be booked in 4Q14 financial statement.

- Share prices substantially reflect all factors

After the down revision of Dubai crude oil price assumption in 2015 to

US$75/barrel, new fair value at end-2015 is B154.17 for PTTEP (versus

B180 at present) and B395 for PTT (versus B413 at present), which still

provides an upside from the current share prices. If the impairment loss

provision is included, estimated at around US$1bn according to a

newspaper, 2015 fair value of PTTEP will decrease by B5 but still be higher

than the current share price. Also, PTT’s share price will be impacted by the

issue, but with a positive factor from the fuel price restructuring (LPG and

NGV), 2015 fair value will increase at least B50 (under an assumption that

LPG and NGV prices are raised to the actual cost). Moreover, there are also

an upside from BCP share selling and IPO of PTT’s two subsidiaries (SPRC

and GPSC) in 2015 to help offset the negative factor.

- During fair value revision. BUY reiterated

We maintain NEUTRAL for the sector. Although we are revising 2015 fair

value of PTT and PTTEP, we reiterate our recommendation of BUY as the

current share prices have overly reflected the negative factors.