PTT Global Chemical
Q4 2012F: Earnings surprise on the upside BUYPTT Global Chemical Plc (PTTGC)
4Q12F: Net profit Bt8.2bn. Following a company visit we believe PTTGC's 4Q12F and
2012F could be higher than previously expected. We estimate net profit at Bt8.2bn in
4Q12F, implying a decline of 36% QoQ but a rise of 102% YoY. This suggests that 2012F
could reach Bt31.8bn or 7% better than our projection. The key driver for this is an
improved product spread, mainly for aromatics. Lower profit QoQ was due to stock
gain in 3Q12 against possible small stock loss in 4Q12 due to a slide in oil price.
Maintenance cut production rate of olefins and polymer QoQ. Utilization rate at
oil refinery and aromatics plants was unchanged at 101% and 90% but olefins slid from
91% in 3Q12 to 88% in 4Q12F due to maintenance shutdown. This also affected polymer
utilization, especially LDPE, which fell from 113% in 3Q12 to 71%. It worked to maximize
HDPE output by raising utilization to 100percent from 92% in 3Q12.
Product spread of aromatics widened QoQ. PX and BZ spread over condensate
increased by 25% and 69% QoQ, respectively, in 4Q12. Behind this spike was tight
aromatics products supply due to lower feedstock availability. Spread remains good so
far in 1Q13, but management believes this will not be sustained due to higher supply
entering the market in 2H13, especially of PX.
Weaker market GRM QoQ, in line with the industry. We estimate PTTGC's market
GRM to decline to US$4.7/bbl from US$5.94/bbl in 3Q12. This corresponds to the
industry, with Singapore GRM also sliding from US$9.2/bbl in 3Q12 to US$6.5/bbl in
4Q12 due to narrower crack spread for all refined products. This partly reflects a return
of some regional refineries that were shut down unexpectedly in 3Q12. We also expect
the company to book a marginal stock loss in 4Q12F at
US$3.74/bbl in 3Q12 due to weaker oil price. Fortunately, PTTGC has attempted to
minimize inventory level to reduce impact from inventory loss. Its end-4Q12 inventory
of crude and products was trimmed to 5.7mbbl from 6.6mbbl at the end of 3Q12.
Positive guidance for 2013F. Management is positive on 2013F earnings growth,
driven by better product spread of olefins polymer (+US$50/t from 2012) and fewer
shutdowns, leading to a rise in olefins utilization rate to more than 90percent from 88% in
2012. We have upped our 2013F forecast by 16% to reflect this positive guidance.
BUY rating maintained with TP raised to Bt90. With the revised earnings for 2013F
we have raised our TP from Bt78 to Bt90, based on 1.7x PBV (+1SD). Hence we reiterate
our BUY call on PTTGC's better earnings outlook than previously expected. PTTGC's
valuation also looks more attractive than local and regional peers with PE of only 10x
(2013) vs. the 13x regional average. Downside risks to our forecast are weaker than
expected product spread, unplanned shutdowns and higher than expected production
cost after the business consolidation.