PTT Global Chemical

Q4 2012's profit to weaken qoq

PTT Global Chemical Plc (PTTGC)

4Q12's profit to weaken 26%qoq from stock loss and lower GRM

We estimate 4Q12's net profit at B9.54bn, declining 26.1%qoq due mainly to

following reasons. 1) The company might book a stock loss of almost

US$1/bbl in this quarter, compared with a stock gain of US$3.74/bbl in 3Q12.

2) Market GRM is projected to drop to US$4.7/bbl from US$5.94/bbl in the

previous quarter. 3) Fx gain is anticipated to decrease by 46%qoq to stand at

only B400m from only slight appreciation of Baht. However, in 4Q12 the

company has a benefit from increasing petrochemical product spreads,

especially for aromatics products: Px - condensate which has widened

25%qoq to US$640/ton and Bz - condensate which has widened 76%qoq to

a historical high at US$439/ton. At the same time, spreads of olefins products

have gradually risen average by 5-10%qoq, as shown in the table. In

addition, petrochemical product sales in 4Q12 has only stayed flat from 3Q12

despite an increase of the utilization rate of the HDPE plant from 92% to 97%

because a 20-day maintenance shutdown of the olefins plant I4-1 made raw

material supplying for LDPE production decrease to only 71percent from 113% in

the previous quarter. Overall, 2012's net profit is estimated at B33bn,

increasing 10.4%yoy, higher than our previous forecast by 5%.

To rebound aggressively in 1Q13. Growth of 8.4% yoy foreseen in FY2013

We believe that the profit would grow notably again in 1Q13 from very high

product spreads, especially for aromatics, while olefins spreads will be

gradually increasing. At the same time, sales volume is projected to shift

from 4Q12 because there is not a maintenance shutdown in this quarter,

while the I4-1 plant has already resumed its normal operation. For overall

2013, we still have a positive outlook toward the petrochemical industry,

projecting to see a continuous recovery from rising demands alongside the

economic rebound. We project that olefins spreads would show the most

remarkable recovery in 2013 as the product prices and spreads have

increased only slightly in the past. For aromatics, products prices and spreads

have escalated significantly in 4Q12 because many refineries in the region

have undertaken unplanned shutdowns which resulted in temporary

disappearance of raw materials, both reformate and pygas, from the market.

However, as many refineries undertaking maintenance shutdowns in the end

of last year would resume their normal operations in 1H13, product prices

and spreads in 2H13 might weaken a little from currently. Nevertheless,

overall, average spreads in 2013 would remain high like in 2012. Norm profit

in FY2013 is projected to grow from FY2012 by 8.4%.

Buy. Petrochemical business signals recovery

2013's fair value, DCF, is B92.43/share. We reiterate BUY. PER in 2013 of

PTTGC is low at only 9.9x, still lower than the regional average of 13-14x. On

the contrary, average ROE in the next 2 years is projected at 14-15%, higher

than the regional average at 10-11%