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PTT Global Chemical

4Q13 profit to substantially beat projection. Olefins to boost profit in 2014 BUY

PTT Global Chemical Plc (PTTGC)

- 4Q13 profit to drop only 22.9%qoq, thanks to refinery business

We estimate 4Q13 net profit at B7.4bn or a decline of 22.9%qoq, better than our

projection, thanks to the refinery business. Market GRM has dropped only 3.7%qoq

to US$3.35/barrel and an impact from the decreasing GRM on PTTGC is insignificant

since PTTGC's product that is based on benzene price, which is reformate, comprises

only 10% of its total products, and most of the reformate produced is used as

feedstock for the petrochemical business. Moreover, in 4Q13 the company would

book a stock gain of US$1.4/barrel, though falling 51.7%qoq. On the other hand,

profit from the aromatics business is projected to decrease following Px-condensate

spread that contracted 1.4%qoq to US$504/ton. The factor to depress 4Q13 profit

would be a Fx loss of around B950m from 4.67%qoq depreciation of the Baht.

However, the olefins business would play an important role in alleviating the profit

fall. In 4Q13, PTTGC's olefins plant have been able to resume its utilization rate of

90% after the GSP#5 could feed raw material at 50% of its capacity and LDPE plant

has resumed its 76% capacity after stopping in 3Q13. Furthermore, average spreads

of olefins products - HDPE, LLDPE, and LDPE, have widened by 3.7%qoq, 6.0%qoq,

and 10.6%qoq, respectively. Overall, FY2013 net profit would be B33bn, decreasing

3.9%yoy, 11.8% better than our projection.

- Olefins, main business to boost 2014 profit growth to 12%yoy

We project the profit in 1Q14 to grow from 4Q13 mainly because of the refinery and

olefins petrochemical businesses. For the refinery business, GRM is projected to rise

on seasonal effect, reflecting from Singapore GRM since the beginning of 2014 until

present that stands at US$6.5/barrel on average, up 52.5percent from 4Q13 average.

Moreover, many refineries worldwide would conduct an annual shutdown in late

1Q14 after running at their full capacity during winter, so some supplies would

disappear. Likewise, spreads of olefins products since the beginning of the year have

increased averagely by 5percent from 4Q13, reflecting reviving demands. FY2014 profit is

expected to grow 12.0%yoy due to full resumption of every plant after the planned

and unplanned shutdowns in 2013. Furthermore, as we project olefins petrochemical

spread to stay only flat from 2013 under a conservative method, there is significant

upside that the spread might increase from the current forecast since a new supply

of olefins in 2014 and 2015 would increase only 460,000 and 450,000 tons, versus

five to six million tons a year of demand growth, thus likely benefiting the product

price and spread in the next couple of years.

- Buy. 2014 PER is only 8.7x, lower than regional average

2014 fair value (DCF) is derived at B91.78. We reiterate to buy PTTGC and select it

as a top pick of the refinery-petrochemical sector for its high upside of 27%. 2014

PER is only 8.7x, lower than the regional average of 12x. Dividend yield can be

expected at 5% p.a.

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