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Thai Oil

Net loss estimated in 4Q13. To revive to profit in 1Q14 BUY

Thai Oil Plc (TOP)

- 4Q13 to face slight net loss due to Fx loss

We project TOP to face a slight net loss of B60m in 4Q13, versus a strong profit of

B7.6bn in the previous quarter, because of the following reasons. 1) Market GRM is

anticipated to decrease significantly by 60%qoq to US$2/barrel as spreads of

finished oil, especially benzene, shrank significantly in October - November 2013.

At the same time, a premium of Melbourne crude oil TOP uses as a major raw

material (60% of total raw material) rose US$1.3/barrel from 3Q13, resulting in

higher cost. 2) Refinery utilization rate has dropped to 100percent from 104% because

there was a utilization reduction to 96% in October due to decreasing GRM. 3)

Stock gain is projected to decline 50%qoq to US$2/barrel following the increase in

crude oil price at end-4Q13. 4) Profit from lubricating oil business is anticipated to

weaken by 35%qoq along with 2.1%qoq contraction in product spread and a

decrease in the utilization rate from 112% in the prior quarter to 94%. 5) Fx loss is

projected to increase to B2.3bn, versus B249m in 3Q13, due to the Baht

depreciation of 4.7%qoq. Meanwhile, profit from the aromatics business would stay

close to that of the previous quarter at B1.1bn. Although Px-ULG95 spread has

shrunk 6.7%qoq to US$421.8/ton, it was compensated by Bz-ULG95 spread has

widened 15.5%qoq to US$297/ton. Overall, FY2013 net profit is estimated at

B10.3bn, dropping 16%yoy, 20.5% lower than our previous forecast.

- Cut 2014-2015 forecast to reflect weak Px spread

We revise down our earnings forecast since 2013, as shown in the table. For 2013,

we cut the forecast to reflect the Fx loss in 4Q13 and cut long-term assumption of

Px-ULG95 spread to US$400/ton since 2014 onward, from US$500/ton, in order to

reflect newly emerging supplies that would exceed Px demand growth. Especially in

2014, there would be new Px supplies from China and Korea by around 6-7 million

tons a year, while a new supply of PTA, which uses PX as a raw material, would

rise only 4-5 million tons a year. Accordingly, an oversupply of Px is foreseen in

the next couple of years. We also slash our assumption for the spread of

lubricating oil (500SN-HSFO) since 2014 to US$450/ton, from US$500/ton

previously, because Group II and III lubricant is still in an oversupply situation,

thus depressing spread of Group I lubricant of TOP. After the forecast revision,

normalized profit in 2014 would decline 9.4%yoy since in June - July 2014 TOP

would undertake a 55-60 days major turnaround of CDU 3 unit with a production

capacity of 165,000 barrels a day. However, normalized profit would reverse to

growth of 11.3%yoy again in 2015. In the short-term, nevertheless, 1Q14

earnings might be able to show a profit due to rising GRM on seasonal effect,

reflecting from Singapore GRM since the beginning of 2014 until present that

stands averagely at US$6.6/barrel, leaping 53.9percent from an average of

US$4.3/barrel in 4Q13. Moreover, many refineries worldwide would conduct an

annual shutdown in late 1Q14 after running at their full capacity during winter, so

some supplies would disappear.

- Reiterate BUY. New fair value still implies 24.8% upside

Under the new forecast, 2014 fair value (DCF) is B68 (previously B79), still

implying 24.8% upside from the current share price. Dividend yield can be

expected at 4-5%p.a. (paying semiannually). Buy.

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