PTT Global Chemical
Core profit slightly below estimates
PTTGC reported strong 4Q12 net earnings of Bt10,388m, up 156% YoY but down 20% QoQ. Stripping out extra items, 4Q12 core profit would be Bt8,216m, up 115% YoY but down 8% QoQ. While the bottom-line was slightly above our estimate and the consensus, due to higher-than-expected extra gains, core earnings fell slightly short of both our number and the street, due to a higher effective tax rate and SG&A expenses than modeled.
The YoY core earnings growth was driven by: 1) fatter aromatics spreads (PX spread up 7% YoY to US$610/t; BZ spread turned around from negative to $437/t), 2) a fatter market GRM ($4.7/bbl versus $3.7/bbl in 4Q11) and 2) greater sales volume (PX and BZ volume up 19% YoY to 2.9mt; olefins volume up 13% YoY to 641kt); note that olefins margins weakened.
The QoQ core profit contraction was due mainly to: 1) weaker market GRM (down 21% QoQ), 2) lower olefins sales volume (down 6% QoQ due to some planned shutdowns), 3) a higher SG&A/sales ratio (2.4% versus 2.0% in 3Q12) and 4) a higher effective tax rate (7.6% versus 5.9% in 3Q12). However, greater aromatics (PX spread up 42% QoQ; BZ spread up 66% QoQ) and olefins spreads (MEG spread up 41% QoQ; other polymers up by 3-7% QoQ) and higher aromatics sales volume (up 15% QoQ) lent support to 4Q12 core earnings. Note that there was also a small inventory loss (against a huge inventory gain of Bt3.2bn in 3Q12).
PTTGC's core profit is expected to rise both YoY and QoQ in 1Q13, driven by fatter chemical spreads and greater sales volume brought about by higher run rates at its olefins facilities because of fewer planned shutdowns. In addition, if crude prices were to be sustained at current levels (Dubai is US$112/bbl), there would be an inventory gain of about $2/bbl in 1Q13.
We maintain our FY13 net profit forecast of Bt35,179m unchanged.
In our view, expectations of strong earnings growth in 1Q13, fueled by a chemical spread recovery should catalyze the share price in the near-term. Moreover, if the global economic recovery (particularly China) were to prove sustained, demand for chemicals would expand further, pushing spreads up and prompting a valuation re-rating. There is also scope for upside to PTTGC's long-term earnings profile from synergistic benefits. The stock currently trades at an FY13 PER of 10.2x and an FY13 EV/EBITDA of 6.2x, discounts to the regional means of 26.1x and 11.1x, respectively.