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PTT

Weak, as expected; the bottom-line will bounce strongly in 1Q14

PTT Plc

Profit missed the street's

PTT posted a weak 4Q13 profit of Bt15,392m, down by a marked 50% QoQ and 32% YoY. The result was only 4% above our expectation, but was 12percent short of the consensus estimate. The core number also contracted 16% QoQ to Bt15,317m (but was up 8% YoY) and was 7% lower than our estimate, due to cost-of-sales being heavier than expected.

Results highlights

Apart from a heavy expenses-squeezed PTTEP result, a poor oil unit number added to PTT's weak core number. Retail oil EBITDA dived 31% QoQ to Bt2,088m—retail marketing margin was slimmer and international oil EBITDA posted a deeper QoQ loss of Bt550m from Bt217m.

The positive highlights of 4Q13 were improved gas and coal businesses. Gas EBITDA jumped an impressive 12% QoQ to Bt12,381m, even though gas sales slipped to 4,462 from 3Q13's 4,488mmcfd. The 50% resumption of GSP#5 (since Oct 21) boosted GSP production to 1.5mt from 1.4mt the previous quarter (the ramp-up coincided with higher petchem product prices). Coal EBITDA more than doubled to Bt2,307m from Bt1,043m in 3Q13. Sales tonnage rose 14% QoQ to 3.3mt on higher sales at the Sebuku Mine, while ASP, surprisingly, was sustained at a similar level to 3Q13's US$70/t, despite the weak coal price environment.

Outlook

The bottom-line will bounce strongly in 1Q14. The huge 4Q13 FX loss is unlikely to recur and the numbers of all subsidiaries should improve substantially, buoyed by normalized expenses—particularly at PTTEP, which reported big one-off expenses in 4Q13—and spikes in refining and petchem margins. Nonetheless, PTT's core number may remain flat QoQ. Higher GSP product prices tied to petchem prices are likely to be offset by weaker gas sales (given the slowing economy) and a heavier shutdown schedule at PTTGC than earlier assumed.

What's changed?

In order to factor in our PTTEP's earnings projection cut and a diminished expectation for PTT's gas sales, we have trimmed our FY14 PTT profit forecast by 2% to Bt96,834m. Our FY13 gas sales assumption falls from 4,800mmcfd to 4,700mmcfd, growth of 3% YoY.

Recommendation

PTT remains our preferred Energy pick. Even taking earnings downside risk into account, we reckon that the stock trades at the cheapest valuation within Thai Energy space—an FY14 PER of 8.4x, which is close to its long-term mean, and an even less demanding YE14 PBV of 0.9x, 1SD below its long-term average. In order to reflect our earnings forecast cut and lower target prices for subsidiaries, we have trimmed our PTT YE14 target price to Bt352 from Bt364.




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