PTT Global Chemical

Q4 2012F: Earnings surprise on the upside BUY

PTT 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.

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