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PTT Global Chemical

Reform concerns a buying opportunity

PTT Global Chemical Plc (PTTGC)

Event

- PTTGC declined 2.9% on Thursday vs the broader SET


driver appears to be press reports related to lobbying for changes to LPG pricing

and/or taxes. We offer an overview and maintain our OP rec.

Impact

- Lobbying for change. Thai activists including a former senator are arguing that

LPG prices are unfair as petrochemical producers are "said" to receive lower prices

than consumers. This issue came about as part of a

prices that was initiated by the junta last week.

- Uses. Thailand's LPG usage is 35% petrochemicals, 32% cooking, 24% automotive,

and 9% internal/industrial. Key to this issue is the recognition that LPG usage in

transportation has grown at 20% CAGR since 2000 vs total LPG usage of just 10%.

This is the result of creative automobile conversions, and lax regulation that allowed

drivers to avoid high oil prices.

- Sources. Thailand's LPG comes from gas separation plants (50%), refi

and imports (25%). We note that Thailand only beca

driven chiefly by that rapid increase in automotive consumption.

- Prices. LPG prices are regulated by segment. The former government

implemented a staggered price increase for high income, cooking gas px.

- Oil Fund. Thailand's Oil Fund is a tax pool that was designed to be used to help the

country manage temporary price spikes but has devolved into a policy mechanism.

This includes subsidies for LPG prices and discounts for biofuels. Activists realize that

imported (higher cost) LPG is a burden on the Oil Fund and now appear to be

targeting petrochemical producers.

- Ignorance is bliss. Firstly, Thailand's cooking gas prices are deeply discounted

relative to both international prices and neighboring countries. Secondly, the major

source of Thailand's low cost LPG is gas separation plants. These plants were built to

support a highly successful petrochemical industry. Had they not been constructed,

Thailand's LPG would mostly be burnt in power production. Petrochemical producers

do not receive discounted LPG, rather it is priced relative to returns on investment

costs via long established net back pricing agreements. Thailand generates

enormous tax revenues on the back of these highly successful industries.

Earnings and target price revision

- No change.

Price catalyst

- 12-month price target: Bt91.00 based on a DCF methodology.

- Catalyst: clarity on LPG feedstock pricing and taxes

Action and recommendation

- Clarity on energy policies are pending. The entire space is at risk; we assign a low

probability to changes impacting PTTGC's natural gas feedstock.


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