PTT

Insights into 4Q12: Deeper NGV and LPG losses are already priced in

PTT Plc

Investment thesis

In our view, PTT's recent share price was simply constituted catching up, The stock still lags the SET—its PER has historically been a 20% discount to the main index, but it is currently a 30% discount. Deeper NGV and LPG losses raised concerns and might prompt a consensus FY13 earnings forecast downgrade. Despite that, we are optimistic that the losses will be contained—the stable oil price outlook means gas prices will track sideways; and the fact is that its past underperformance has already priced in. In order to fine-tune for our target price upgrades for its subsidiaries (TOP and PTTGC), we raised our PTT's SOTP valuation to Bt410 from Bt400.

4Q12 revisited—FX gain and no write off boosted bottom-line …

We are more optimistic about the 4Q12 bottom-line and raised our FY12 forecast by 6% to Bt104,594m on an assumed FX gain and no write-off for PTT's investment in EMG (the dispute between EMG and EGAS is in arbitration). Our revised model indicates a 4Q12 profit of Bt22,640m, down 37% QoQ but up 36% YoY. Still, its operational performance would have weakened. Gas sales and GSP production will beat our earlier estimates—record highs of 4,746mmcfd and 1.75mt, respectively, from 4,611mmcfd and 1.67mt in 3Q12.

But, deeper NGV losses will offset the effect of volume growth; Bt5.2bn in 4Q12 versus Bt5bn in 3Q12. The firm has also been losing on LPG sales since 2Q12 and will likely post much greater extent in 4Q12. Gas costs have outpaced the govt's price cap of US$333/t—4Q12 gas averaged $392/t, up from $350/t in 3Q12 and $328/t in 2Q12.

…subsidiaries to lead 1Q13 profit growth

Despite QTD strength in chemical-related GSP product prices, we are neutral on the prospects for 1Q13. We think prices are likely to weaken seasonally after Chinese New Year. Also, with impressive gas sales growth in 4Q12, we don't expect a similar growth performance for 1Q13. Also GSP output will soften, due to the 20-day shutdown of GSP#2. NGV and LPG sales might post deeper losses on sustained high gas costs in the face of rising demand. Moreover, given Egypt's volatile political climate, we still expect another EMG write-off of Bt3.5bn at some stage.

Eyes on greater NGV and LPG losses—consensus downgrade ahead

Our current FY13 forecast of Bt110,426m is 7% below the street's. With deeper losses on NGV and LPG sales switching to losses, we expect a consensus earnings forecast cut. PTT guides that NGV sales will rise to 8,700t/day in FY13 from 8,000t/day in 4Q12 and an FY12 mean of 7,700t/day. That implies a loss of Bt23bn, more than the Bt18bn loss we expect for FY12. The prevailing LPG cap price will also deepen losses on LPG sales. Assuming that PTT's FY13 gas cost is about the same level as for 4Q12, we calculate a loss on LPG sales of Bt4bn. A stronger chemical margin recovery and—more importantly—LPG and NGV price de-control are scope for earnings upside this year.