PTT Exploration & Production

PTT Exploration and Production Plc (PTTEP) 

 

As global crude oil prices seem to remain low and 2Q15 profit is likely to miss our projection, we revise down PTTEP's earnings forecast from 2015 on. Since there are many negative factors to weaken the share price, we downgrade our recommendation to HOLD for the short term.  

 

- 2Q15 profit projected at only B618m 

 

We estimate PTTEP's 2Q15 net profit at B618m, plummeting 92.8%qoq, mainly as a result of the following extraordinary expenses: 1) THB has depreciated by B1.2/US$, possibly resulting in Fx loss of B730m and increasing tax expense by B2.46bn; and 2) hedging loss is projected at B1.66bn. Normalized profit is also predicted to fall 34.8%qoq because of lower petroleum selling price, a 1.5%qoq decline in sales volume, and an 11.1%qoq increase in total cost. Overall, 1H15 net profit is estimated at B9.2bn, sinking 69.8%yoy and making up only 30.7% of our initial full-year forecast. 

 

- Revise down forecast… 2Q15 profit disappointing, oil price assumption drops 

 

We revise down PTTEP's earnings forecast in 2015-2016 since Dubai crude oil price assumption is lowered by US$5/barrel to US$58/barrel in 2015 and US$70/barrel in 2016. We also include extraordinary expenses in 1H15, e.g. Fx loss and hedging loss, in our projection. Under our new forecast, PTTEP's net profit is projected to fall 5.1%yoy in 2015 and then leap by 62.9%yoy in 

 

2016, thanks to possibly higher oil prices. 

 

- Downgrade to HOLD 

 

Under our new forecast, end-2015 fair value (DCF) is revised down from B125 to B110. We downgrade our recommendation from BUY to HOLD as the share price would fall for the short term due to weaker-than-expected 2Q15 earnings; we recommend buying after price correction minimizes risk.