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PTT Global Chemical

Olefins to boost growth in 2014-2015 BUY

PTT Global Chemical Plc (PTTGC)

- Olefins: growth driver for next couple years

According to the analyst meeting, PTTGC would proceed with its capacity

expansion and product value-adding strategies, which would start generating

revenue since 2H14 and throughout 2015 - 2017. The long-term business

outlook is still in line with our previous forecast that olefins would be a key profit

driver in the next couple years. HDPE, LDPE, and LLDPE spreads are now in an

uptrend since olefins supply in 2014-2015 has increased at a slower rate than

the average demand growth of 5-6 million tons a year. Likewise for the refinery

business, GRM in 2014 would increase by 6.0%yoy; contributing factors are a

delayed commercial run of a refinery in China with capacity of 760,000 barrels

per day to 2015 and a permanent shutdown of refineries in Japan and Australia

with combined capacity of 750,000 barrels a day in 2014. However, the

aromatics business, Px in particular, would be in a downtrend due to

significantly increasing supply of 7 million tons in 2014, versus the demand

growth of only 3 million tons.

- Profit to surge aggressively in 2Q14

We project to see the profit growth of around 30-40%qoq to B8-9bn in 2Q14

after PTTGC had bottomed out in 1Q14, thanks to the following reasons: 1) the

olefins plant has resumed its operation after the shutdown in 1Q14, with the

utilization rate predicted to increase to 90%; 2) the GSP#5 could resume its

100% operation since early April 2014, up from 50% previously, allowing PTTGC

to use natural gas as raw material in a larger proportion and thus benefiting the

spread; 3) olefins spread would remain in an uptrend as a result of gradually

increasing demand from the world economic recovery; 4) GRM would remain

high on seasonal effect.

- Good time to accumulate

2014 fair value (DCF) is B87. We reiterate to buy PTTGC. The previous share

price decline likely has already reflected negative factors, while 2014 P/E ratio is

only 9.2x, lower than the regional average of 13.1x. Dividend yield can be

expected at 5% p.a.

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