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Bangchak Petroleum

Shrinkage foreseen in 4Q13, but GRM would help recover profit in 1Q14 BUY

Bangchak Petroleum Plc (BCP)

- GRM and Fx loss to depress 4Q13 profit

We estimate 4Q13 net profit of BCP at B510m, plunging 62.5%qoq and

55.5%yoy due to the following factors. 1) GRM is projected to decrease

17.4%qoq to US$3.9/barrel following contracting spread between finished oil

and crude oil prices, especially ULG95-Dubai spread that dropped to only

US$9.2/barrel, versus US$12.4/barrel in the prior quarter. 2) Marketing

margin of the retail business is anticipated to decline 3.8%qoq to B0.51/liter

due to high competition to earn industrial customers as every refinery wants

to sell the most domestically refined finished oil. 3) Operating expense is

projected to increase 60.8%qoq on seasonal effect. 4) The Thai Baht at end-

4Q13 has weakened 4.7%qoq, causing BCP a total loss of B500m from

foreign exchange (from its US$ debt) and future purchase contract. However,

there are still positive factors to sustain the profit in 4Q13. 1) The company

would book a gain of around US$1.1/barrel from hedging. 2) There would be

a stock gain of US$2/barrel, mainly from the weak Baht. Dubai crude oil price

at end-4Q13 rose US$1/barrel from end-3Q13, so 4Q13 net GRM is projected

at US$7/barrel, decreasing 19.3%qoq. Overall, FY2013 net profit is estimated

at B4.5bn, growing 4.7%yoy or 7.6% lower than our previous projection.

- 2014 forecast slashed but normalized profit tends to grow

We slash our profit forecast for 2013 onward, as shown in the table. FY2013

profit forecast is revised down to reflect the above-mentioned 4Q13 Fx loss

and long-term GRM assumption is cut since 2014 onward to US$6/barrel,

from US$7/barrel previously, in order to reflect increasing supply that would

exceed the oil demand. Particularly, in 2015 there would be new supply of

two million barrel a day. However, the new GRM still has a premium when

compared with the sector's GRM we estimated at only US$4/barrel; this is

because BCP has high quality fuel oil that can be sold at a higher price than

the sector's. Moreover, the company is undertaking 3E project to add value

for its refinery in the long run. Nevertheless, under the new forecast, FY2014

normalized profit would still rise by 14.7%yoy. Even though there will be a

46-day planned maintenance shutdown of refinery in May-June 2014, BCP's

profit would still be boosted by income from the solar power plant (Phase I

and II for a full year and Phase III since 2H14). Continuous growth of

17.7%yoy is also foreseen in 2015. For a short-term outlook, the profit in

1Q14 is projected to improve from 4Q13 as a consequence of rising GRM on

seasonal effect, reflecting from Singapore GRM since the beginning of 2014

until present that has stood at US$6.6/barrel on average, up 53.9percent from

US$4.3/barrel in 4Q13. Moreover, in late 1Q14, worldwide refineries would

undergo annual turnarounds after running at their full capacity during winter,

so the supply would partially disappear.

- BUY. New 2014 fair value is B36

Under the new forecast, new 2014 fair value (DCF) is B36 (from B45),

implying 36% upside from the current share price. Buy.

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