The Nation



PTT Exploration and Production

Good subsidiary of PTT in 2014 BUY

PTT Exploration and Production Plc (PTTEP)

- Fx factor to make 1Q14 profit surge

We project 1Q14 net profit at B12.8bn, leaping 72.4%qoq because Fx

loss has decreased 68.8%qoq to only B653m. Yet, the normalized profit

would stay flat qoq although average petroleum sale price is projected to

increase 1.6%qoq to US$65.5/barrel following gas sale price that would

increase 3.4%qoq to US$7.9/million BTU. At the same time, crude oil

price is anticipated to drop slightly by 0.9%qoq to US$100.5/barrel,

while overall sales volume is projected to stabilize at 299,000 barrels a

day. However, the increased income would be negated by depreciation

that is projected to rise 13.8%qoq to US$19/barrel from recognition of

more sales volume from Montara project that has high production cost

and an extraordinary expense of B825m (net after tax) from a shutdown

of the unsuccessful H5 well that had been drilled to replace the leaked

well. Overall, 1Q14 net profit is projected to make up 17.3% of our

FY2014 forecast.

- New projects still boost 2014 profit growth

We maintain our profit forecast for FY2014, projecting the net profit to

make a new high by year with the growth of 20.1%yoy. On the other

hand, negative factors that would depress the sales volume below the

forecast by 10,000 barrels a day are 1) Zawtika project in Myanmar

(M9) that had to delay a commercial production of natural gas for selling

back to Thailand (240 million cubic feet a day) for two months from 1

April 2014 previously scheduled and 2) the cancellation of drilling of the

H5 well of Montara project, which would make total production target of

Montara decrease around 20.8% to only 19,000 million barrels a day in

2014. Nevertheless, the negative factors would be compensated by the

company's acquisition of two projects from Hess Corporation in

Thailand: 1) Sinphuhorm (Hess holding 35percent stake) with 100 million

cubic feet a day capacity of natural gas production and 2) Pailin (Hess

holding 15percent stake) with 360 million cubic feet a day capacity of natural

gas production, which would help increase total sales volume of PTTEP

by 10,000 barrels a day as well.

- Buy

We recommend buying PTTEP. 2014 fair value (DCF) is B191.50/share,

implying 21% upside. 2014 P/E ratio is only 9.3x, still lower than the

regional average of 10.8x.

Comments conditions

Users are solely responsible for their comments.We reserve the right to remove any comment and revoke posting rights for any reason withou prior notice.