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Published on March 21, 2008

Despite the sharp fall in the price of crude oil on the New York Mercantile Exchange in recent days, the most heavily weighted stocks in the SET Index - PTT Exploration and Production (PTTEP) and its parent, PTT - have returned as the top picks on investors' radar screens.

"Early this year, we recommended that investors snap up domestic-oriented stocks including banks and property, but their prices have already gone up within a short run. Now, we have suggested that investors pile up PTTEP and PTT stocks, as their prices are still SET laggards and the current Dubai crude-oil price still exceeds our forecast," Bualuang Securities head of research Chaiyaporn Nompitakcharoen said yesterday.

The brokerage has set target prices for PTTEP and PTT at Bt190 and Bt440, respectively. The targets are based on an assumption that Dubai crude will average US$75 (Bt2,400) per barrel this year. Morgan Stanley, which is Bualuang Securities' partner, has estimated that the average for Dubai crude this year will be $90, below the present market price of about $97.

On the New York Mercantile Exchange (Nymex), April futures fell $4.94, or 4.5 per cent, to end at $104.48 a barrel in the biggest one-day decline since August 6, as investors locked their profits and fled to the US dollar and the bond market. Oil prices in the Nymex hit an all-time high of $111.80 a barrel on Monday.

"We think the retreat in oil price is short-lived, as the dollar will tend to weaken further as the US sub-prime turmoil has yet to settle," Chaiyaporn said.

According to the consensus of analysts, another 20 brokerage houses in addition to Bualuang Securities rate "buy" on PTTEP, two houses recommend "trading buy" and one each suggests "hold" and "neutral". Their target prices are in a range of Bt146-Bt195. For PTT's stock, 22 brokers aside from Bualuang Securities recommend "buy", with target prices of Bt380-Bt488.

Trinity Securities, one of the brokers, has raised its PTTEP first-quarter net-profit estimate by 20 per cent from Bt8.44 billion to Bt10.19 billion as the Dubai crude price in the first quarter is averaging $86, which is higher than its estimate of $73.

"Although the stronger baht will weaken revenue and profit, the rising oil price far offsets the baht's appreciation," the broker said in a note. "From interviews with executives of many listed energy firms, they agreed with an oil price at $90 a barrel, including $20 from speculation of hedge funds. If crude oil is unloaded by hedge funds, the price might be weakened at a maximum of $20 a barrel from the current price."

Trinity Securities has set PTTEP's target price at Bt195.

An analyst at the brokerage said the sharp fall in commodity prices, including oil, stemmed from a sell-off by hedge funds to take money to prepare for redemption at home.

Ayudhya Securities analyst Adisak Phupiphathirungul recommended that investors buy energy stocks when their prices are weakened.

The brokerage said in its research paper that the crude price would remain high throughout 2008 as Organisation of Petroleum Exporting Countries, controlling 43 per cent of the world's crude output, will use a strategy to prevent oversupply.

"Although several brokers cut the estimate for oil demand this year to reflect the US economic slowdown, the EIA [Energy Information Administration] forecast that global oil demand this year would stand at 87.04 million barrels a day - close to supply at 87.24 million barrels per day," the paper stated.

The broker recommends "buy" on PTTEP's stock and has upgraded its fair value estimate from Bt181 to Bt185 per share  It has also raised Dubai crude estimates for 2008-2010 by 11-21 per cent to $85, $78 and $70 a barrel, respectively.

"Every $1-per-barrel change in the crude oil price from the base case at $85 will either increase or reduce PTTEP's net profit by Bt365 million, while every Bt1 change in foreign exchange from the base case at Bt31 to the dollar will cause its net profit to be higher or lower by Bt1.74 billion," the broker said.

The company is bullish over PTTEP's business outlook.

The Arthit and Vietnam 9-2 project, which will commerce commercial operations this year, will boost PTTEP's earnings this year by 33 per cent, Ayudhya Securities said.

Siriporn Chanjindamanee, Oranan Paweewun

The Nation