PTT

PTT Plc 

 

Losses as expected

 

PTT’s 3Q15 NPAT flipped into a big net loss of Bt26,581m versus the Bt23,746m net profit posted for 2Q15. The reported loss plumbed a similar level to that of 4Q14’s, which also stemmed from losses on crude inventory and impairment assets; and was in line with our expectations and the street’s projection. Despite contraction in oil prices and seasonal soft-patches in downstream margins during the quarter, its core earnings however ended lower by a moderate 4% QoQ, arriving at Bt26,583m. Expansive sales volume partly mitigated the effect of the price weakness.    

Results highlights

The negative highlights for 3Q15 were exceptional losses on mark-to-marketed crude inventory of its refining-cum-chemical units and PTTEP’s asset impairment; and that PTT also booked greater losses on its product stocks in tandem with falling oil prices & NGV sales and further impairment against deteriorating value of its remaining Palm Oil assets in Indonesia. Those assets totaled Bt6bn versus a Bt2.9bn loss posted for 2Q15. Besides that, the seasonal soft-patches in petchem margins also entailed the weakness in its operational performance. 

Gas EBITDA nose-dived 37% QoQ to Bt9,033m. Apart from bigger loss on NGV sales (Bt3.2bn versus 2Q15’s Bt2.8bn), its gas sales to industrial clients (~14% of total gas sales) were at a loss, as a lag-time adjustment in the nature of its gas costs slowed to respond to the market selling prices, which are typically pegged to the spot fuel oil price. Yet, a 6% QoQ increase in GSP output (to 1.59mt) and QoQ stable gas throughput has somewhat eased the price effect.  

Oil marketing EBITDA also plunged 47% QoQ to Bt2,375m largely due to bigger losses on its product stock; Bt1.8bn versus only Bt119m in 2Q15. A seasonal weakness in oil sales and a plunge in marketing margin were also responsible for the decline. On the flipside, coal EBITDA turned to strength by a hefty 23% QoQ to Bt628m, albeit on slightly lower tonnage sales and price realization—we think falling production costs in tandem with a collapse in oil prices has weighed the effect of the top-line weakness. 

Outlook

The 3Q15 seemed to be the quarter set-back; and the 4Q15 bottom-line would have bounced strongly, in our view. With range-bounded oil price movement and a high mark of end-Sep THB/USD currency, huge losses on FX and crude & product inventory are unlikely to recur in the fourth quarter. Further impairment principally against deteriorating value of its coal assets in Indonesia remains the factor to watch. If that were to be the case, we believe the scope of the loss will be contained (around a maximum of Bt4-5bn). Operationally, the firm’s gas business would have improved, albeit on seasonally low demand for gas—we anticipate a lower loss on NGV sales and that gas sales to industrial clients are set to improve due to lower gas costs following Oct’s wellhead price downward adjustment.   

What’s changed?

Fine-tuning with PTTEP and PTT’s reported impairment losses for 3Q15, we have slashed our FY15 NPAT projection by 47% to Bt41,533m. Apart from volatility in oil prices and the THB/USD rate, possibility of impairment against its Indonesian coal assets is also the key variable to our projection. 

Recommendation

Amid continued angst over the oil price and concerns over the weaker outlook for refining and petchem margins into 2016, PTT offers the safest haven among O&G stocks as a diversified asset play. A “cost-plus-return” pricing formula on gas pipeline, translating to a quarterly profit of Bt11-12bn, seems to weigh on its forward earnings. A full-year effect of NGV price increase plus a possibility of further upward adjustment early next year would also buoy the firm’s 2016 outlook. The resolution of regulatory overhangs, mainly the establishment of a “Super holding” structure and the likelihood of a spin-off on its retail oil business would potentially catalyze its share price.