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PTTEP

Opportunity to accumulate Buy

PTTEP Plc

Unveiling of five-year investment plan. PTTEP announced a 5-year investment plan for 2014-2018F of a total US$27bn: US$17bn for capital expenditure and US$10bn for operations. This is US$2bn higher than the previous plan covering 2013-17F, raised to include investment in the LNG project in Mozambique and a new gas field in Myanmar (M3). Both projects are scheduled to start commercial operations after 2018F. The plan does not include potential acquisition of Hess assets in Thailand and Indonesia but management reaffirmed that cash on hand remains sufficient for this.

Thailand and Myanmar still the focus. More than half of the 5-year investment budget will be spent on projects in Thailand and Southeast Asia, areas which PTTEP sees as primary drivers for earnings growth, especially Myanmar. Investment in the Middle East and Africa will also trend up over time, chiefly the LNG project in Mozambique - but PTTEP will have to wait at least five years before these generate cash. Of note is that investment in Australia is limited to only 1percent for the next five years after the massive investment into Montara. Management confirms, however, that it plans to proceed with floating LNG projects in this region.

Trims target sales volume for 2014F. The company also gave its target sales volume for 2014-18F, shown in Figures 1 and 2. The 2014F target has been trimmed from 340kBOED to 337kBOED due to the revised production from the Canada Oil Sand project but still shows a 16% increase YoY. Key drivers are full-year operation of Montara and the startup of Zawtika gas field in Myanmar in 1Q14. Also backing the rise is production from Natuna Sea A, acquired from Hess in 4Q13. Target sales volume will rise 5% YoY in 2015F to 354kBOED on the full year of operations of Zawtika before starting to wind down from 2016F as production at several oil projects, including Montara, decline.

Marginal impact on our valuation. We have fine-tuned our valuation model to incorporate this new CAPEX plan and sales volume. The impact is limited, though earnings forecast for 2014-15F does come up slightly by 3-4%.

Valuation more attractive after 10percent share price correction. PTTEP's share price fell 10% over the past three weeks and underperformed the SET (-5%) and its sector

(-6%). We believe this reflects market concerns on the weaker oil price, but we see this as overdone. The current valuation is compelling at 2014 P/E of only 8.2x vs. historical average of 12x, and dividend yield of 4.9%. Our DCF valuation still suggests TP of Bt210 and we confirm our BUY rating. Key risk to our call is the volatile oil price.




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