PTT Global Chemical Plc (PTTGC)
- PTTGC declined 2.9% on Thursday vs the broader SET
driver appears to be press reports related to lobbying for changes to LPG pricing
and/or taxes. We offer an overview and maintain our OP rec.
- Lobbying for change. Thai activists including a former senator are arguing that
LPG prices are unfair as petrochemical producers are “said” to receive lower prices
than consumers. This issue came about as part of a
prices that was initiated by the junta last week.
- Uses. Thailand’s LPG usage is 35% petrochemicals, 32% cooking, 24% automotive,
and 9% internal/industrial. Key to this issue is the recognition that LPG usage in
transportation has grown at 20% CAGR since 2000 vs total LPG usage of just 10%.
This is the result of creative automobile conversions, and lax regulation that allowed
drivers to avoid high oil prices.
- Sources. Thailand’s LPG comes from gas separation plants (50%), refi
and imports (25%). We note that Thailand only beca
driven chiefly by that rapid increase in automotive consumption.
- Prices. LPG prices are regulated by segment. The former government
implemented a staggered price increase for high income, cooking gas px.
- Oil Fund. Thailand’s Oil Fund is a tax pool that was designed to be used to help the
country manage temporary price spikes but has devolved into a policy mechanism.
This includes subsidies for LPG prices and discounts for biofuels. Activists realize that
imported (higher cost) LPG is a burden on the Oil Fund and now appear to be
targeting petrochemical producers.
- Ignorance is bliss. Firstly, Thailand’s cooking gas prices are deeply discounted
relative to both international prices and neighboring countries. Secondly, the major
source of Thailand’s low cost LPG is gas separation plants. These plants were built to
support a highly successful petrochemical industry. Had they not been constructed,
Thailand’s LPG would mostly be burnt in power production. Petrochemical producers
do not receive discounted LPG, rather it is priced relative to returns on investment
costs via long established net back pricing agreements. Thailand generates
enormous tax revenues on the back of these highly successful industries.
Earnings and target price revision
- No change.
- 12-month price target: Bt91.00 based on a DCF methodology.
- Catalyst: clarity on LPG feedstock pricing and taxes
Action and recommendation
- Clarity on energy policies are pending. The entire space is at risk; we assign a low
probability to changes impacting PTTGC’s natural gas feedstock.