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PTT

2013 was an aberration, 2014, back to growth BUY

PTT Plc

Still BUY despite earnings hiccup in 2013, anticipating 8.4% core profit growth in 2014F. We confirm our TP of Bt400, based on sum-of-the-parts. Valuation remains attractive in our view at 2014 PE of only 8.3x (-0.3SD) and 0.9x PBV (2014), plus dividend yield of 4.4-4.5percent for the next three years from strong cash flow.

Operations shielded from politics, as seen by its ability to carry on as usual for the last two months, despite being blockaded at its head office. Like PTTEP, it is working on asset rationalization to limit the negative impact from non-performing assets. Also, the Bt21bn in NGV losses is believed to have peaked in 2013, as it limited network expansion. We believe these two items could give upside to earnings, especially if NGV price is adjusted to reflect operating cost - though we aren't pinning our hopes on this given the current political vacuum.

Highlights:

- Management reaffirmed little impact on PTT's operations from politics, but at the same time, the prolonged rally has the power to weaken the economy, which will send ripples into gas demand in 2014F. Confirmation is seen in the announcement by several companies in the automotive industry, key electricity users, that they are reducing production in 2014F due to unfavorable domestic car sales.

- PTT sees a fairly stable oil price for 2014F at US$100-105/bbl, with some upside risk in the near term from the problems in Ukraine. In addition, geopolitical uncertainties in the Middle East and North Africa will continue to affect oil price from time to time. Oil price could dip in 2Q14 on refinery maintenance shutdowns.

- 2014F operating performance should be better, as GSP#5 will resume normal operations in August and PTTEP will contribute more as it gains from higher production volume from Zawtika (M9), scheduled to begin gas delivery to Thailand in the next 1-2 months.

The unfavorable market conditions are expected to move the listing of GPSC and SPRC to 2H14 or later. Also, the listing of SPRC will require cabinet approval.

- PTT is reviewing its overseas investment and may look to divest some, such as the palm plantation in Indonesia. The company is also working to revive the pipeline business in Egypt which was disrupted by the political uprising in 2013.

Earnings growth of 8.4% in 2014F, driven mainly by higher contribution from PTTEP (full-year operation of Montara and Zawtika). In addition, we also expect PTT's gas business to improve YoY when GSP#5 gets back to 100%. This will also benefit PTTGC's olefins operation, which was affected by gas supply disruption in 2013.


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