PTT

PTT Plc 

Investment thesis

PTT remains our top pick within Thai Energy space. Although the recent oil price rise has eased concerns over stock losses at refining-cum-chemical subsidiaries, MS believes that crude prices will decline again this year. If MS is correct, sentiment would be hit across the sector, so PTT would outperform other O&G stocks, in our view. Apart from NGV price de-control, FY15 will be a year of unlocking value, providing scope for earnings upside. As we have factored a new LPG price regime and an NGV price increase into our model, we have raised our target price from Bt363 to Bt420.    

Balance sheet clean-up dent a huge loss in 4Q14

We model for a 4Q14 net loss of Bt25,682m against 3Q14’s profit of Bt24,558m. The dive squeezes estimated FY14 NPAT to Bt56,762m, down 40% YoY. Apart from losses from subsidiaries, PTT will book impairments on non-production assets—the winding up of its oil palm plantation venture, provisions for doubtful debts of Rayong Purifier Plc, etc—totaling Bt10bn and stock losses of Bt3.6bn. However, the gas operational performance strengthened, driven by expanding gas throughput and GSP output. Sales volumes touched new records of 4,802mmcfd (gas) and 1.73mt (GSP) versus 3Q14’s 4,731mmcfd and 1.59mt, respectively.      

Downsized PTTEP earnings forecast prompts lower FY15 estimate

Due to our recent PTTEP FY15 profit forecast cut and diminished expectations for gas sales volume and GSP output expansion this year, we have slashed our earnings projection by 15% to Bt75,223m. Our gas sales growth assumption is now 5% YoY (previously 8% YoY), to fine-tune for a diminished economic recovery outlook. A 2-month turnaround for the first GSP unit and another 20-day shutdown of the fifth unit during May-July caused us to cut our FY15 GSP output assumption—we now anticipate a slight YoY decline in output to 6.2mt (in FY14, 6.4mt was produced).      

Oil price decline limited scope for NGV price uplift?  

While our revised model factors in the govt’s new LPG price regime and a gradual adjustment in the NGV price toward PTT’s cost of Bt15.50/kg by end-Sept, the prevailing low oil price environment raises concern over the scope for further NGV price adjustments (the final price may fall short of the market expectation of Bt15-16/kg). Recent discussions with PTT made us feel that this is not a matter of concern—the oil price drop will reduce its cost slightly to Bt14-15/kg, which will ease the loss on NGV sales. In our view, that may however curb scale of the adjustment to only Bt0.50/kg, as having been experienced with the latest price increase.

Unlocking value—scope for upside to FY15 earnings

This year, PTT will divest shareholdings in affiliates—BCP (27.22%), GPSC (30.10%) and SPRC (36%), from which we anticipate a total gain of at least Bt10bn. The sale of the BCP stake will be the biggest contributor. Assuming a benchmark with the current market price, we calculate a net-of-tax gain of Bt8bn, considering net investment costs of only Bt5/share after deducting BCP’s cumulative dividend payment over the last 10 years. PTT insists that a deal will be finalized by March. Also, GPSC is due to list on the SET by June and SPRC sometime in 2H15. Cabinet has approved the listing of SPRC; the listing process usually takes at least 6 months.