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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.


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