4Q13 earnings as expected; core profit growth momentum to continue
PTT Global Chemical Plc (PTTGC)
In line with estimates
PTTGC reported a 4Q13 net profit of Bt7,421m (down by 31% YoY and 23% QoQ). Stripping out extra items, core earnings would be Bt5,665m (down by 32% YoY and 14% QoQ). The bottom-line was consistent with our estimate and the consensus, but the core profit was 28% below our number (and the street’s), due to: 1) greater use of Naphtha feedstock and 2) additional expenses related to ramp-ups at olefins plants. For FY13, net profit was Bt33,277m, down 2% YoY, and core profit was Bt30,188m, down 2% YoY. Results highlights
The YoY earnings contraction was due to: 1) a slimmer market GRM, 2) weaker aromatics spreads, 3) a lower MEG spread, 4) an FX loss (against an FX gain in 4Q12) and 5) in 4Q12 the firm booked a one-off Bt944m gain on a bargain purchase. The QoQ earnings contraction was due to: 1) greater use of Naphtha feedstock (to 12% from 4% in 3Q13), 2) additional expenses related to ramp-ups at olefins plants, 3) higher SG&A expenses—the SG&A/sales ratio rose to 2.5% from 2.1% in 3Q13, 4) lower inventory gains and 5) a deeper FX loss. (see details in Figure 2) Outlook
1Q14 core profit should expand QoQ (but soften YoY), driven by a greater market GRM and fatter olefins spreads. Seasonally high demand has pushed up the benchmark Singapore GRM in 1Q14-to-date by 55% QoQ (albeit still down 25% YoY) to US$6.3/bbl. Meanwhile, a broad demand recovery has driven up the QTD HDPE spread by 3% QoQ (and 13% YoY) to $604/t. However, PX spread has weakened 17% QoQ to US$372/t. Even though a 35-day maintenance shutdown is slated for the I1 plant in March, we expect 1Q14 sales volume to remain stable QoQ, as additional olefins volume output among other plants (enabled by a greater supply of Ethane from PTT’s GSP#5) should offset the effect of the outage. What’s changed?
We maintain our FY14 net profit forecast unchanged at Bt36,361m. Recommendation
Expectations of a core operational improvement in 1Q14, driven by greater sales volume and fatter product spreads, should catalyze the share price in the near-term. Moreover, the start of an olefins margin up-cycle this year will facilitate long-term stock price upside, we believe. PTTGC currently trades at an FY14 PER of 9.2x, a steep discount to the regional mean of 14.1x. Furthermore, its FY14 dividend yield of 4.9% is significantly higher than the Asian average of 3.3%. The firm announced a DPS for 2H13 operations of Bt1.78, which implies an annualized dividend yield of 4.7% for FY13 (XD March 3; payment April 25).