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The men of the moment: PTT and IRPC

Energy

Upgrade to OVERWEIGHT


- We upgrade our investment recommendation from NEUTRAL to OVERWEIGHT as

global economy, especially the US, Eurozone, and China which are major

consumers, tends to recover continuously. Moreover, in the short term, many

countries would launch economic stimulus packages e.g. China, which would boost

demands for commodities e.g. petroleum and petrochemical. Furthermore, since

entrepreneurs had very low petroleum and petrochemical stockpile, they will have

to start restocking the products again. This is a key factor to boost the overall

product prices. In addition, the unrest situations in the world's major oil exporting

countries and the political problems might make the oil price rebound from present

because the market has been worried about decreasing supplies from the

countries affected or difficulty in oil transportation if a war erupts. Our assumption

for Dubai crude oil price in 2014 at US$100/barrel is still lower than the average

price year-to-date and average price in 2013 at US$104 and US$105/barrel,

respectively.

- PTT and IRPC to grow strongly in 2014

We project the profit of the energy sector in 1Q14 to improve from 4Q13,

especially PTT and IRPC which would exhibit a turnaround. For PTT, 1Q14 profit

from the gas separation business would improve following rising product prices,

while its subsidiaries would also revive e.g. petroleum production and exploration,

refinery, and olefins petrochemical. The profit in FY2014 is projected to rebound

14.2%yoy from sales volume from the gas separation plant after GSP#5 resumed

its operation for a full year. Moreover, petroleum business (PTTEP), the sales are

projected to increase, while olefins sales (PTTGC and IRPC) would also rise as

GSP#5 could supply more feedstock to the olefins factory and LDPE factory could

resume its operation for a full year. Moreover, spreads of olefins product would

remain in an uptrend in 2014. IRPC would fully benefit from the issue, so its profit

would skyrocket 322%yoy in 2014.

- Top picks are PTT and IRPC

We select PTT(FV@B368) and IRPC(FV@B4.20) as top picks of the sector. PTT's

valuation is very cheap, with P/E ratio of only 7x, the lowest among peers,

whereas its fundamental factors are strong. IRPC is also a shooting star from its

turnaround in 2014.




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