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The Bangchak Petroleum

Aug 10. 2012
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By Asia Plus Securities

March forward with refining capacity expansion For short-term,recommend "hold" as upside is limited

The Bangchak Petroleum Plc (BCP) 

Grabbing opportunity from fire accident, expand capacity by 16.7%

According to the analyst’s meeting yesterday, BCP’s management has

revealed a new investment plan, grabbing an opportunity from a repair of the

kerosene cracking unit after the fire accident to increase the production

capacity to 140,000 bbls/day from currently 120,000 bbls/day (but the

utilization rate is 110,000 bbls/day which is the most effective rate). The

capacity expansion will need around B1bn in investment and will take 3 years

to complete. At the same time, the company will also undertake a 3E project

(Efficiency, Energy, and Environment improvement project) in order to

enhance efficiency in the production system which is friendly to the

environment. The 3E project will need an investment of around B4bn.

However, the repair of the cracking unit will be completed and the unit will be

able to resume its operation by October 2012 as previously estimated, so

utilization rate in 2012 would drop to 80,000 bbls/day from the projection of

91,600 bbls/day. Meanwhile, the company will gradually book the insurance

claims for the property damage and business interruption since 4Q12 onward

(BCP has made insurance with Tippaya Insurance company for a damage of

refinery, raw material, machines and business interruption totaling B22bn as

well as comprehensive general liability of B1.5bn).

3Q12 will still be pressured, to recover in 4Q12

We maintain our net profit forecast for 2012-2013 although earnings in 3Q12

would be depressed by the fire accident at the kerosene cracking unit in the

3rd crude-distillation until with a production capacity of 80,000 barrels/day

(67% of the total production capacity of BCP at 120,000 barrels/day).

According to the company’s preliminary damage evaluation, the refining unit

would be shut down for 3 months (3Q12), which means utilization rate of

BCP in 3Q12 will stand at 40,000/day. However, this would be compensated

by GRM that has increased from 2Q12 from selective refining of high margin

oil. Moreover, there is a high chance for BCP to return to book stock gain in

3Q12 from the oil price in 2H12 which is foreseen to rise after hitting a low in

2Q12, reflected by Dubai crude oil price which has increased 14% from end-

2Q12 to stand at US$105.63/bbl. Furthermore, earnings would revert to

normal again in 4Q12 after BCP could resume its normal utilization rate of

90,000 bbls/day.

Reiterate only “hold”. Current share price has only 5% upside left

Fair value at end-2012, using DCF, is B24.01/share. We believe the decline of

the share price in the past has partially reflected the negative factors, but the

current share price still has limited upside. Reiterate to hold to receive



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