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Thai Oil

Thai Oil Plc (TOP)

Margin support into shoulder period

Event


- Industry consultant FACTS has released its monthly refining maintenance update. A

further 500kbd of maintenance was added to previous May estimates. This leaves

projected May outages in Asia at their highest level since 2005. Combined with the

location of these outages and against relatively low global inventories, seasonal

margin weakness into May-June is less of a threat. Thai Oil remains our top pick in

the Asian refining space.

Impact

- Record maintenance in May. Asian CDU maintenance capacity is expected to

reach 2.5mm bpd in May. This represents a 750kbd MoM increase from April which

was already at the top end of its historical range. Global CDU maintenance will peak

in April but remain elevated into May at over 4.8mm bpd. The delta between a

seasonal demand deceleration (Feb to May) and incremental maintenance suggests

that Asian GRMs will have a measure of support through the May-June shoulder

period.

- Global inventories also at low levels. Using 4Q13 OECD data, global inventories

for middle distillates, gasoline and total refined product were all tracking at the

bottom end of their historical ranges. Ahead of a seasonal acceleration in global

demand that starts in late June, inventories are looking "light".

- Source of outages also relevant to seaborne trade. From Asia, Japan will be

the key source of maintenance closures into May. Against the March 2014

government mandated closure of 400kbd of refining capacity and with over 1mm bpd

of maintenance capacity scheduled for May, regional trade is also well supported.

Earnings and target price revision

- No impact
.

Price catalyst

- 12-month price target
: Bt69.00 based on a DCF methodology.

- Catalyst: Refining margins, recovered PX prices, EPS confidence post investment

upgrades, Murban Dubai spread

Action and recommendation

- Maintain OP. In our view, concerns related to TOP's paraxylene exposure are fully

captured at current valuations. We also believe the market is failing to appreciate the

EPS benefits of TOP's tax-free refinery upgrades. Scheduled to be completed by

August, we expect to see material improvemen


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