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PTT Global Chemical

Already bottom out in 1H14. Vigorous rebound in 2H14 BUY

PTT Global Chemical Plc (PTTGC)

We revise down our 2Q14 net profit forecast again since PTTGC's 2Q14

profit might drop more acutely by 0.8%qoq, depressing 1H14 profit.

However, an aggressive rebound of 39.4% is foreseen in 2H14. Buy.

- 2Q14 net profit to fall 0.8%qoq

We have received information from PTTGC regarding two factors that might

make 2Q14 earnings result lower than our previous forecast: 1) an

extraordinary expense for impairment of Vencortex (PTTGC holds 51%

stake) is estimated at B1.5bn, larger than previously projected, and 2)

market profit-to-feed margin (P2F) of aromatics products in 2Q14 would

plunge as much as 50.0%qoq to US$83/ton, lower than previously

expected. Accordingly, 2Q14 net profit would stand at only B6.2bn,

dropping 0.8%qoq. 1H14 profit is estimated at B12.5bn, down 22.8%yoy

and accounting for 36.8% of our FY2014 forecast.

- Cut 2014 forecast by 11.9%

We revise down our FY2014 earnings forecast to reflect non-recurring

factors in 1H14 i.e. the expense on Vencorex and the utilization rate of an

olefins factory from an unplanned shutdown in 1Q14. The new profit

forecast is decreased 11.9percent from previously to B30bn or a decline of

9.8%yoy. However, 2H14 net profit would grow as much as 39.4percent from

1H14 because 1) olefins and polymer factories would resume working at

their full capacity after the shutdown in 1H14 and 2) olefins spread would

widen since the recovering economy would help boost the demand.

Meanwhile, the aromatics and refinery businesses are likely to stay flat from

1H14.

- New 2014 fair value is B84. Buy on weakness

Under the new forecast, 2014 fair value is B84 (down from B87). We

reiterate to buy PTTGC because the share price has partially absorbed the

negative factors while P/E ratio is low at only 10x and average dividend

yield is as high as 5%p.a.


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