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PTT Global Chemical

Superb profit foreseen in 2Q14 BUY

PTT Global Chemical Plc (PTTGC)

- 1Q14 profit to fall 15.9%qoq

We estimate 1Q14 net profit at B6.2bn, plunging 15.9%qoq because of the

following reasons. 1) A planned shutdown (39 days) and unplanned shutdown

(25 days) of olefins factories in 1Q14 have made the utilization rate decrease to

77percent from 90% in 4Q13. 2) Spread of paraxylene (Px), which makes up 67% of

PTTGC's aromatics products, has contracted significantly due to newly emerging

supply, while spread of Px-condensate has shrunk 25.7%qoq to US$367/ton. 3)

Dubai crude oil price at end-1Q14 has fallen US$4/barrel from end-4Q13,

causing a stock loss of US$0.7/barrel to PTTGC's refinery. However, there are

still positive factors to sustain the overall profit in this quarter. 1) Gross refinery

margin (GRM) has increased remarkably by 50.3%qoq to US$5.1/barrel due to

seasonal effect. 2) Spread of PE resin has widened by 2.2%qoq, except for

MEG-0.65 Ethylene spread that has declined 12.8%qoq because a large

polyester fiber stock in China in 1Q14 has suppressed MEG demands. 3) There

has been a Fx gain of B480m from the 1.1%qoq appreciation of the Baht.

Overall, 1Q14 profit would account for 17.2% of FY2014 profit forecast.

- Strong profit surge foreseen in 2Q14

We project 1Q14 profit to mark a quarterly record low of 2014. A strong profit

rebound is foreseen in 2Q14 owing to the following contributions: 1) the

shutdown olefins factories would resume their operation, which would increase

the utilization rate to 90%; 2) GSP#5 has been able to resumes its 100%

capacity since early April 2014, resulting in larger gas feedstock to PTTGC,

which would benefit the spread; 3) olefins spread would remain in an uptrend,

thanks to reviving demands along with the world economic recovery; 4) GRM

would remain high on seasonal effect, boosting FY2014 profit growth to

9.0%yoy.

- Time to accumulate

2014 fair value (DCF) is B91.78. We reiterate to buy PTTGC. The previous slump

of the share price has likely already reflected the weak profit in 1Q14, while

2014 P/E ratio is only 8.8x, versus the regional average of 13x. Dividend yield is

as high as 5% p.a. (paying semiannually).


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