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Thai Oil

Be prepared for profit tumbling in 2Q14 Hold

Thai Oil Plc (TOP)

Refinery boosts 1Q14 profit

- We estimated TOP's earnings to turnaround from a net loss of B14m in

4Q13 to a net profit of B2.3bn in 1Q14, thanks to the following

contributions. 1) A Fx gain of B420m would be booked due to stronger

THB, versus a massive Fx loss of B1.8bn in the previous quarter. 2)

Hedging gain would increase 54.6%qoq to B600m. Marketing GIM in

1Q14 is projected to increase 30.6%qoq to US$6.4/barrel following the

GRM that has leapt 155.6%qoq to US$4.6/barrel on seasonal effect.

Profit from the aromatics and lubricant businesses would plunge

41.9%qoq to US$1.8/barrel on average, mainly because Px-ULG95

spread has shrunk 38.6%qoq to US$273/ton and falling Px price would

cause LCM loss of B100m in 1Q14. However, accounting GIM would drop

20.3%qoq to US$5.1/barrel since Dubai crude oil price has decreased

US$4/barrel from 4Q13 and resulted in a stock loss of US$1.3/barrel,

versus a stock gain of US$1.5/barrel in 4Q13. Overall, 1Q14 profit would

make up 20.7% of our FY2014 forecast.

- Dreadful outlook in 2Q14 from aromatics

We revise down our profit forecast for 2014-2015, as shown in the table,

in order to reflect the worse-than-expected aromatics business. Px-

ULG95 spread has decreased since the beginning of the year and stood

at only US$165/ton in late March or a three-year low. Accordingly, we

cut the spread forecast in 2014 and 2015 from US$400/ton to

US$250/ton and US$300/ton, respectively. New Px supply of over 7

million tons/year in 2014 and 3-4 million tons/year in 2015 would still

not be able to meet with growing demands. Consequently, we project

2Q14 net profit to hit a year low because of 1) the aforementioned

narrower Px-ULG95 spread and 2) a 55-day major overhaul of CDU-3

distillation unit with a total capacity of 165,000 barrels/day, which would

make the utilization rate of the refinery and aromatics factory lower

from 105% and 93% to 80% and 60% in 1Q14.

- Downgrade to hold for dividend

Under the new forecast, 2014 fair value (DCF) is B56 (down from B68).

We downgrade our recommendation from buy to hold for dividend.

2014-2015 dividend yield can be expected at 3-4%p.a. (paying


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