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Bangchak Petroleum

Solar to shine in 2014 BUY

Bangchak Petroleum Plc (BCP)

BCP's burgeoning solar power business is poised to lead it to another good year despite the planned major turnaround, which, after completion will add to oil refinery profit by increasing efficiency and capacity. BCP is a top pick in 2Q14F in recognition of a strong 1Q14F and favorable market GRM from regional refinery shutdowns. The current valuation for 2014F at 8.7x P/E looks undemanding compared with 12.6x for regional peers. It is also supported by 4.6% dividend yield.

Solar contribution to shine this year. Currently, only 70MW of the total 118MW of BCP's solar power plants (59%) is operating. The remainder will start up gradually over the course of this year with startup of the last unit (16MW) in July. This will be key to earnings growth in 2014-15. By our calculations, a full year of the entire 118MW solar power will generate EBITDA of Bt2.8bn p.a. Profit contribution from solar power is expected to increase to 22% in 2014 and 28% in 2015 from 15% in 2013, easing the fluctuations in BCP's cash flow in the longer term.

Crude run down ~10% YoY on planned shutdown of the 80kbd-crude distillate unit, lowering profit contribution from oil refinery in 2014. This unit was damaged by a fire in 2012 and the normal 30-day period for a major turnaround is being extended by 16 days to install the new refinery column. This will boost its refining capacity to 140kbd from 120kbd. The company can claim insurance compensation for the opportunity loss during the plant shutdown and the insurance company will also pay for the new column (~Bt400mn). The shutdown will reduce crude run to 90-94kbd (75-78% utilization) from 99.3kbd (83% utilization), which we estimate will lower average GRM to US$7/bbl in 2014F from US$7.53/bbl in 2013.

BCP's 2014 EBITDA target is >Bt10bn (SCBS Bt9.4bn), backed largely by the solar power business. The maintenance shutdown in 2Q14 is expected to pull refinery earnings (EBITDA) down ~10% YoY. At the same time, the EBITDA target of Bt10bn still represents growth of 7% YoY from Bt9.3bn in 2013, thanks to higher profit contribution (EBITDA) from the solar business (+57% YoY). SCBS' 2014 forecast is more conservative at EBITDA of Bt9.4bn; note that we do not include the insurance compensation for opportunity loss during the extended maintenance shutdown.

BCP a top pick for 2Q14. Backing this is our conviction that market GRM will continue to improve as regional refineries shut down for maintenance. Announced maintenance plans show shutdown of ~1.4mbpd refining capacity in Asia in 2Q14-early 3Q14, including BCP's 80kbd CDU. Though the shutdown will keep BCP from reaping the full benefit of the rising GRM, it should still outperform others, for whom earnings will be hurt by weakening aromatics price. It is also scheduled to receive some compensation for opportunity loss during plant shutdown (see below). BCP is expected to announce a good 1Q14F in May, and that could be a ST share price catalyst.

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