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The Bangchak Petroleum

Focus on fundamental factors BUY

The Bangchak Petroleum Plc (BCP)

- Upstream investment not worse as expected

Two main issues were discussed at the analyst meeting yesterday. 1)

PTT has planned to sell its entire shareholding of 27.22% in BCP in order

to reduce its monopoly in the refinery business. However, if the share

selling does occur, BCP still believes that it would not affect its business

operation since their current business relationship is mostly in a form of

technology and knowledge exchanges and combining raw material

orders for lower production cost, which have had insignificant benefit for

the current operation of BCP. 2) Regarding the penetration into an

upstream business of petroleum production and exploration which has

been objected by shareholders and investors, PTT explained that the

investment would help strengthen domestic crude oil supply for BCP's

refinery in the long run. It is preliminarily believed that PTT will join with

a company that has an expertise and experience in this business.

However, with the B5bn cash in hand, BCP's cash flow from operation of

B5bn a year on average, and low net D/E ratio of only 0.22x, PTT has a

potential to invest in the business without an impact on BCP's financial


- Power business: Hero of 2014

We project normalized profit in 2Q14 to weaken from 1Q14 due to a 46-

day planned shutdown (May 1 to June 15, 2014), which is longer than a

usual overhaul shutdown of 30 days since the company will have the

fire-damaged refining tower changed, which will also increase its refining

capacity from 80,000 to 100,000 barrels a day. The shutdown in 2Q14

will decrease BCP's utilization rate by 43.9%qoq to only 55,000 barrels a

day. Nonetheless, this negative factor will be negated by the recognition

of income from all units of the solar power plant phase 3 with total

capacity of 48 MW since late April 2014 onward, which is a few months

earlier than projected, and special insurance claims of B500m for the

property damage (still not included in our forecast). Accordingly, 2Q14

net profit would drop only slightly from 1Q14.

- Dividend yield of 5-6% p.a.

2014 fair value (DCF) is B36. We reiterate to buy BCP as the profit in the

next couple years would show continuous and more stable growth after

the company has been able to recognize more income from the solar

power plant which has certain profit as a result of the power purchase

contract. Moreover, dividend yield of 5.4%p.a. can be expected.

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