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Energy: Petrochemical

Fx rate assumption revised up, boosting FY2014 profit growth to 18.1%yoy Neutral

Energy: Petrochemical

- Baht weakens more than expected, reflecting fund outflow

The Baht has weakened by 3.81% over the past month and touched

US$32.19/US$, reflecting an outflow of foreign fund to developed countries

that could show economic recovery, especially the US. The U.S. economy

has improved significantly, raising a concern that the QE amount might be

cut in the next few months, which is against the sluggish economic growth

of Thailand and other Asian countries. The Bank of Thailand announced a

slash in the policy interest rate (RP1) by 0.25% on 27 November,

aggravating the Baht. Moreover, worries toward domestic political unrest

have triggered foreign net sell in both Thai stock and bond markets.

- Up Fx rate assumption to B31.5/US$, pushing FY2014 profit growth to 18.1%yoy

We revise up our FY2013-2014 earnings forecast, as shown in the table, to

reflect the weaker Baht than expected. Fx rate forecast is increased from

B30/US$ to B31.50/US$ since 2014 onward, but is kept at B30/US$ in

FY2013 because an average Fx rate since the beginning of the year until

present is B30.5/US$, close to the assumption. As a result, FY2014-2015

net profit forecast of the sector increases respectively by 6.09% and

5.91percent from previously. Under the new forecast, FY2014-2015 profit

growth will be 18.1%yoy and 8.4%yoy, respectively. Contributing factors

are increasing production and sales volume from new project (PTTEP) and

production resumption after planned and unplanned shutdowns in 2013

(PTTGC and PTT), as well as the Baht weakness that would make the

sector's profit grow as more than 90% of its income is in US Dollar.

- NEUTRAL. PTTEP and PTTGC are top picks

We assign NEUTRAL weight for the sector and select PTTEP(FV@B217.0)

and PTTGC (FV@B90.41) as top picks of the sector for their most

remarkable profit growth among peers in 2014 at 15.4%yoy and

21.4%yoy, respectively. 2014 PER of the two companies are also low at

only 9.48x and 9.80x, versus the regional average of 12x.


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