Thai Oil

Great contraction qoq projected in 4Q12, to rebound aggressively in 1Q13 BUY

Thai Oil Plc (TOP)

4Q12's profit to plunge 78%qoq due to stock loss/lower GRM/higher tax

We estimate TOP's net profit in 4Q12 at B2.25bn, falling 77.6%qoq due to

following reasons. 1) In 4Q12 the company would book a stock loss of around

US$1.7/bbl (from a decrease of average Dubai crude oil price to US$106/bbl

in December from an average of US$111/bbl in September), reversing from a

stock gain of US$4.3/bbl in 3Q12. 2) Market GRM is anticipated to plunge

29%qoq to US$5.4/bbl from weaker GRM and a US$1/bbl increase in crude

premium from the prior quarter from TOP's purchase of expensive crude oil

for high value product refining. 3) The company will have to book additional

tax expense of around B610m because its BOI privilege exercised in 9M12

exceeded the investment in FY2012. 4) Fx gain has decreased 73%qoq to

B264m from Baht appreciation of B0.19/US$. However, in 4Q12 there are

following contributions to sustain the company's total profit. 1) Aromatics

spreads are anticipated to widen significantly: Px-Naphtha by 36%qoq to

US$535/ton and Bz-Naphtha by 138%qoq to US$332/ton. 2) Refinery

utilization rate has increased to 102percent from 97% in 3Q12 in which there was a

maintenance shutdown of CDU2 refining unit (65,000 bbls/day). Overall,

FY2012's net profit of TOP is projected at B12.6bn, decreasing 14.8%yoy, in

line with our projection.

Profit to recover aggressively in 1Q13. Likely to revise up 2013's forecast

We project net profit to rebound significantly in 1Q13 due to the following

factors. 1) There will not be extraordinary expenses like it was in 4Q12. 2)

The company would be able to exercise BOI tax privilege from its investment

in pollution control project according to its amount of investment each year.

In 2013, TOP has a plan to invest in such project by B2.9bn, which we have

still not included in our current forecast. 3) GRM tends to increase from 4Q12

on seasonal effect, while spreads of Px and Bz will remain high. Overall,

business outlook in 2013 is still bright. For the refinery business, average

GRM is projected to still stabilize at US$4.5-5.5/bbl. Although new refineries

will gradually start their commercial runs since 2H13, there will also be

permanent shutdowns of some refineries such as in Japan and Australia as

well as planned and unplanned maintenance shutdowns of refineries during

the year. Accordingly, demand and supply of refineries will be in balance. For

aromatics business, increasing demands for Px from a new PTA plant will be a

main factor supporting the product price to stabilize at a high level. For Bz,

increasing natural gas production from shale gas is a key factor to depress

overall Bz supply and strengthen the product price. In addition, we are likely

to revise up our net profit forecast for 2013 by 20% to reflect the abovementioned

tax issue, which will make 2013's fair value increase to

B91.4/share.

BUY. PER lower than regional average; ROE higher than 14%

2013's fair value, DCF, is B90.0/share. We reiterate our BUY recommendation.

Current PER in 2013 is projected at only 10.4x, lower than the sector's

average of 13-14x. On the contrary, ROE in the next 2 years is projected at

14%, higher than the regional average of 10-11%.