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Published on April 18, 2008

Siriporn Chanjindamanee

The Nation

Thai Oil's second-quarter net profit is expected to hit a record high of Bt7.3 billion, buoyed by a global year-high gross refining margin of US$13.32 (Bt418) per barrel and its subsidiary Thai Paraxylene's additional annual capacity coming on stream this month.

"Although the average gross refining margin [of Thai Oil] in the second quarter of 2008 is unclear, it is highly likely that it will be on a par with the second quarter last year at $9.51. There might be a stock gain if oil price at the end of the second quarter of 2008 is higher than the previous quarter. Also, petrochemical production of Thai Oil's subsidiary [Thai Paraxylene] will increase by 480,000 tonnes to 900,000 tonnes a year," Trinity Securities said in a statement.

"So, Thai Oil's high net profit at Bt7.3 billion is highly likely from our preliminary estimate."

Thai Oil's current record net profit was in the second quarter of 2006, at Bt6.89 billion.

The company's stock yesterday jumped 5.56 per cent to close at Bt76.

Vijiralux Sangsilapalertchai, Trinity Securities Research executive director, said energy stocks were laggards in the SET Index, though commodity prices are increasing.

"Energy stocks are free from political impact. Energy stocks' price to equity ratio now trade at 10 times, while the SET's P/E stands at 15 times, so energy stocks have greater upside gain than other stocks," she said.

Light, sweet crude for May delivery on the New York Mercantile Exchange rose overnight as high as $115.21 a barrel, an all-time high for a front-month contract.

Trinity Securities recommends "buy" on Thai Oil, with a target price of Bt104 a share.

However, the broker forecast that Thai Oil's profit in the first quarter of the year would fall 6.8 per cent year on year, but rise 17 per cent quarter on quarter to Bt5.76 billion.

Even though an Indian oil refinery will be functional late in the third quarter, the broker predicted Thai Oil would post better year-on-year net profit in the period.

"We estimate Thai Oil's third- and fourth-quarter net profit at around Bt4 billion per quarter. We are not concerned about the third-quarter earnings, but we are worried about the fourth-quarter earnings, so we believe that the stock price will peak at around August to September this year - and that is the timing for selling the stock rather than selling at the moment," the broker said.

Phillip Securities (Thailand) forecast that Thai Oil's second-quarter performance would improve further with supporting factors comprising increasing aromatics capacity from the Thai Paraxylene plant, higher GRM owing to the high season for petrol in the US and lower capacity from Asian refineries due to maintenance shutdowns.

The second quarter average GRM (Dubai Crack) Singapore reference is now at $10.9 per barrel, increasing by 14.4 per cent year on year and 57.6 per cent quarter on quarter.

The broker has maintained its "buy" recommendation on the stock with a fair value of Bt100, applying around 10 times of P/E.

Kim Eng Securities (Thailand) said that global GRM had last week hit a 2008 high of $13.32 per barrel, which is sooner than the normal annual high that usually comes in May. In the past two years, the GRM has hit a yearly high of $11.66 in May 2006 and an $11.47 per barrel high in May 2007.

"The current GRM level at $11-12 per barrel (higher than the same period of last year at $7-8 per barrel) is due to American (February to March) and European (April to May) refinery shutdowns for maintenance. Also, the GRM will continuously rally from the second to the third quarter from the increasing demand for petrol in the American driving season and from climbing demand from the Chinese Olympic games in August. We believe the skyrocketing GRM and full operation of the refinery expansion will boost Thai Oil's second-quarter earnings," the broker stated.

Kim Eng believes that the lagging share price of Thai Oil presents good opportunity to buy the stock. It estimates a fair value for the stock at Bt99.50 apiece.

Asia Plus Securities analyst Nalinrat Kittikampolrat said Thai Oil was undervalued, though its GRM is at a new high which is expected to be maintained until June.

The higher capacity of Thai Paraxylene and the rising paraxylene price to $13,000 per tonne will boost sales revenue, it said.

The broker estimated the fair value for Thai Oil at Bt93.56 a share.