Published on June 24, 2005

The plan by PTT Plc and its affiliated companies to get around the water crisis in Rayong province by shipping in water will likely affect their earnings less than if they cut output, a brokerage firm said yesterday.

Capital Nomura Securities said in a note that purchasing water from other areas would inevitably push up PTT’s petrochemical group’s operating costs, but it would not significantly affect their earnings because their processing costs account for only 10 per cent of overall expenses.

The broker forecasts that PTT’s water costs will increase tenfold to Bt120 per cubic metre, compared to the Bt12 currently charged by the Industrial Estate Authority of Thailand (IEAT). “It appears to be a worthwhile solution because it is a better way to alleviate the impact on their net profit than a production reduction, which can stabilise costs, but lower sales,” Capital Nomura Securities wrote.

Given the drought in the eastern region – home to hundreds of industrial factories – IEAT recently announced its intention to cut water consumption in the area by 40 per cent from next Monday to ensure availability until the end of July if no rain falls. On Wednesday, Siam Cement Plc was the first to announce a 40-per-cent production cutback in its and its affiliates’ plants on the eastern seaboard to save water.

PTT said in a filing with the Stock Exchange of Thailand yesterday that its group would cooperate with the estate authority’s measures, but it has a short-term plan to maintain its current production capacity by buying water and shipping it in by boat.

Moreover, PTT’s group plans to invest in a pipeline and the construction of additional wells, in order to stretch the full production period as long as possible until the drought has eased. This includes the possibility of jointly investing in desalination or reverse-osmosis systems.

PTT said its petrochemical group was expected to take a harder blow than its gas separation and refining groups. Its petrochemical affiliates in the area include National Petrochemical Industry Plc (NPC), Thai Olefins Plc (TOC), Aromatics (Thailand) Plc and Bangkok Polyethylene Plc.

Petrochemical stocks reacted strongly to news of the plan yesterday after falling steeply on Wednesday. TOC’s stock shot up 6.3 per cent to Bt59, ATC was up 4 per cent to Bt52, and NPC surged 3.3 per cent to Bt124.

Capital Nomura Securities said the plan could be implemented promptly because PTT’s group has its own jetties in the Thai Tank Terminal.

Under the water-shipment plan, ATC’s costs would increase less than those of NPC and TOC. ATC uses at least 1,512 cubic metres per day, compared with the 25,000 and 14,400 cubic metres per day used by NPC and TOC, respectively.

As a result, the broker estimates that NPC’s water costs will increase by Bt32 million per month, TOC’s by Bt19 million, and ATC’s by Bt2 million.

Within a month, ATC can install its own desalination system, with a capacity to desalinate 50 cubic metres of seawater per hour.

After news of the Rayong water rationing broke, the broker reduced its earnings forecasts for the companies. But it said it would wait to change the forecast again until it has a clearer picture of PTT’s plan, the costs associated with buying water and the cost of installing additional pipes and systems.

The broker current forecast is that NPC’s 2005 net profit will be Bt3.9 billion, down 4 per cent from the previous forecast, and that TOC’s profit will be Bt8.4 billion, also down 4 per cent. It has maintained its Bt8.7-billion net profit estimate for ATC. The forecasts are based on the anticipation that output will be cut by 20 per cent for two months, in July and August.

Oranan Paweewun

The Nation

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