ed-CK / sa-CS, PY
Share price catalyst remains muted
Lack of share price catalyst
4Q16E profit should pick up q-o-q
Upgrade IRPC to BUY
BCP remains our top pick
Lack of share price catalyst. The share price performance of
Thai oil refiners in 2016 was mixed with disappointment for big
names like Thai Oil (TOP), up only 9.5%, and our top pick,
Bangchak Petroleum (BCP), up only 1.5%. This was far lower
than the Energy sector index which surged 38%, driven by
upstream and integrated oil players. This reflected weaker
refining margins, compared with the remarkable year in 2015.
There should be no difference for this year with refining
margins to improve only marginally from 2016 but higher oil
prices could increase the operating cost of these companies.
Hence, we are NEUTRAL on oil refinery stocks with BCP as our
top pick due to its undemanding valuation and attractive yield.
4Q16E preview. We estimate the 4Q16 earnings of the four
Thai oil refiners under our coverage using available information
on hand. We expect these companies to report stronger profit
q-o-q in a range of 21-29% due to higher refining margins and
inventory gains. The y-o-y performance was mixed, with BCP
and IRPC expected to show strong y-o-y improvement while
TOP’s profit is expected to be flat.
TP is raised by 13-18% and rating upgrade for IRPC. We
have bumped up the TP of three stocks, i.e. IRPC, PTTGC and
TOP, by 13-18% as shown in page 5. We apply a higher PBV for
2017F, which is derived from the previous cycle of oil price
recovery. We maintain our TP for BCP as it already reflects such a
multiple. With the new TP, we upgrade IRPC from HOLD to BUY
as the upside potential is widened. This also reflects more a
positive view on its earnings outlook given that the benefit from
its new plant will be more apparent in 2017F.
BCP is top pick as the laggard with undemanding
valuation. We still like BCP for its cheap valuation – at only
7.8x PE in 2017 – and dividend yield of 5.1%. Its profitability
will stay solid in 2017, driven by higher utilisation rate of its
refinery, following the planned shutdown in early 2016. Its
marketing business will remain strong on higher demand and
more expansion. We also like PTTGC, though its share price
has increased 11% to date but the current P/BV is still below its
historical average.
SET : 1,589.29
Analyst Chaipat THANAWATTANO +66 2657 7827 [email protected]
STOCKS
Source: DBS Vickers, Bloomberg Finance L.P.
Closing price as of 8 Feb 2017 Bangchak Petroleum Pcl : BCP operates a refinery business with 120kbd capacity. The company also has its own retail gas stations, and recently expanded into solar farm, biodiesel, and ethanol.
IRPC PCL : IRPC is a fully integrated refinery and naphtha-based petrochemical producer. Its refinery is the second largest one in Thailand.
Thai Oil PCL : Thai Oil is Thailand's largest refinery and the flagship refinery under PTT group. The refinery is integrated with petrochemicals and lube base plants. TOP also invests in power and businesses.
PTT Global Chemical : PTTGC operates integrated petrochemical complex, mainly gas-based olefins crackers and ethylene derivatives. The company also owns 145kbd-oil refinery and oleo-chemical plants.
Share Price Performance
Source: DBS Vickers
DBS Group Research . Equity
9 Feb 2017
Thailand Industry Focus
Thailand Oil Refinery
Refer to important disclosures at the end of this report
Price Mkt Cap Target Price Performance (%)
Bt US$m Bt 3 mth 12 mth Rating
Bangchak Petroleum Pcl 34.50 1,356 39.00 5.3 18.0 BUY IRPC PCL 5.25 3,063 6.00 8.5 24.4 BUY Thai Oil PCL 72.75 4,237 77.00 1.4 12.8 HOLD PTT Global Chemical 70.25 8,946 79.00 18.6 32.6 BUY
Industry Focus
Page 2
Stronger GRM could support 4Q16F profit
Singapore GRM continued to improve in 4Q16. The gross
refining margin (GRM) in the Singapore market improved
strongly by 31% q-o-q to US$6.74/bbl in 4Q16, up from the
average US$5.15/bbl in 3Q16. This was supported by seasonal
demand, especially for middle distillate products (diesel and jet
fuel) and fuel oil for electricity generation. A higher crack spread
for gasoline after a hiccup in 3Q16 was also behind the sharp
increase of refining margin in 4Q16 despite crude cost
increasing by 11.2% q-o-q.
Figure 1: Gross refining margin (Singapore)
Note: Dubai Crack Singapore Refining Margin Source: Datastream, DBS Vickers
Although Singapore GRM continued to rise to an average of
US$6.81/bbl in Jan-Feb 17, this was much below US$9.28/bbl
during the same period of last year when the crack spread of
gasoline was much better at >US$21/bbl, compared with
US$16.2/bbl in 2017. Hence, Singapore GRM has started the
year at the low-end of the 5-year range, as shown in Figure 1. In
addition, demand for middle distillate products was not strong
enough to buoy the refining margin during the winter of
2016/17. The average crack spread of gasoil edged down from
US$11.3/bbl in 4Q16 to US$11.1/bbl for the first five weeks of
this year.
Higher crack spread for gasoline was the key driver for GRM.
After falling back sharply in 3Q16 to US$11.3/bbl, the crack
spread of gasoline has continued to recover to US$14.6/bbl in
4Q16 and US$16.1/bbl in Jan 17. Higher demand and supply
disruption were the key driving factor for this favourable crack
spread. Demand growth for gasoline could continue to outpace
supply growth in 2017, according to a leading industry
consultant. Hence, we expect gasoline to continue driving
refining margins in 2017.
Figure 2: Refined oil product crack spread (above Dubai)
Source: Datastream, DBS Vickers
Wider inventory gain is expected for 4Q16-1Q17. Although
crude oil prices have continued to improve since 4Q16, the
magnitude of inventory gains for Thailand’s oil refiners remained
limited, in our view. We estimate the inventory gains of
c.US$2.5-2.7/bbl for 4Q16 and US$0.6/bbl for 1Q17 if oil prices
remain stable at the current level. Nonetheless, this would show
some improvement from the inventory gain of US$0.7-0.9/bbl in
3Q16.
Figure 3: Benchmark oil prices
Source: Bloomberg Finance LP, DBS Vickers
Refining margin could pick up slightly on more balanced
market. With the stable growth of demand for refined oil
products, we expect GRM to pick up slightly in 2017F to
US$6.5-6.8/bbl. The key driver could be higher demand for
diesel and jet fuel, which accounts for more than half of Thai oil
refiners’ product yield. On the supply side, we expect net
additional capacity to remain slightly lower than demand
growth, with the capacity in China as a swing factor, mainly the
teapot refineries. The key risk for the industry is volatile oil prices
triggering inventory gains or losses.
Industry Focus
Page 3
Figure 4: Average gross refining margin (Singapore)
Note: Dubai Crack Singapore Refining Margin Source: Datastream, DBS Vickers
Oil price recovery would continue in 2017F. The DBSV regional
oil and gas team still expects Brent oil price to increase to a
range of US$55-60/bbl in 2017F, up from US$45-55/bbl in
4Q16. OPEC’s recent agreement to cut supply from Jan 17 to
Jun 17, joined by some key non-OPEC producers is likely to
accelerate oil rebalancing (achieving equilibrium in 1Q17) and
price recovery. Confidence has also been boosted by Saudi
Arabia’s tone for deeper cuts. Nonetheless, we remain cautious
on the longer-term price assumption at US$60-65/bbl. We think
that the real impact of OPEC’s supply cut still has to be seen,
depending on whether OPEC could control production within
the agreed quota. Also, this still depends on the response from
US shale drillers if prices move towards more lucrative levels of
US$60/bbl, and the energy policy of the new US President
Donald Trump. Further, the US dollar appreciation and interest
rate hikes may add to pressure on oil prices as well. The
wildcard remains the shift in geopolitics under President Donald
Trump. The higher oil price could boost non-recurring benefit
for oil refiners from inventory gains. Nonetheless, in the longer
term, this could adversely affect their refining margin due to
higher fuel cost for refinery and fuel loss in the process, ranging
from 2-6% of crude intake, depending on the efficiency of the
refinery and integration of refinery and petrochemical plants.
Higher oil price still has marginal impact on fuel cost. We think
that the recent oil price recovery should not have much impact
on fuel cost for oil refiners. Dubai oil price has increased
US$22.8/bbl from its low in Jan 16, implying a lower refining
margin by US$0.7/bbl due to higher fuel cost, assuming that
fuel used in the refinery and loss during the refining process
accounts for 3% of crude intake. Nonetheless, this should be
offset by a lower crude premium by US$1.6/bbl during the
period – hence, there is still a net positive margin of US$0.9/bbl
for overall refining activities.
Crude premium could soften further on higher production of
light products in the US. Crude premium has edged up from
US$1.8/bbl in 3Q16 to US$2.1/bbl in 4Q16. Nonetheless, as the
oil price recovery has encouraged more production of light
crude oil, we believe that this could help narrow the gap
between light and heavy crude oil prices. As shown in the figure
below, the price gap between Murban (light crude oil) and
Dubai (heavy crude oil) prices has narrowed further to an
average of US$1.6/bbl in 1Q17. This could be positive for Thai
oil refiners, which in practice use other types of crude oil as
feedstock, including Murban and Arab Light, which offer better
product yield to match the configuration of refinery and
domestic demand for refined oil products. We expect this
positive trend to continue in 2017 given that the oil price
recovery would encourage more production from non-OPEC
countries, especially for shale oil in the US.
Figure 5: Crude premium*
Note: * Spread between Murban – Dubai crude oil Source: Bloomberg Finance LP, DBS Vickers
Para-Xylene spread narrowed q-o-q. PX-ULG95 spread has
narrowed by 16% q-o-q to US$297/t in 4Q16, the weakest
quarter of the year. This reflected higher feedstock cost, i.e.
ULG95 which was closely linked with crude oil prices, and a
wider crack spread of ULG95 above crude oil price on higher
demand. PX price has edged up 1.3% q-o-q, even though new
supply has entered the market from India’s Reliance. The first
phase of this plant with a capacity of c.800k tpa (tons per
annum) has started commercial operation in Nov 16 and the
larger capacity of second phase at 1.45mtpa is scheduled to
come online in 1Q17. This could remain the key drag on PX
spread for the rest of the year. More PX capacity from Petro
Rabigh in Saudi Arabia will put more pressure on the spread
from 2Q17 onwards.
Industry Focus
Page 4
Figure 6: Para-Xylene product spread (PX-ULG95)
Source: Datastream, DBS Vickers
4Q16F earnings preview. Most of Thailand’s oil refiners under
DBSV coverage are expected to report stronger profit q-o-q in a
range of 21-29% due to higher refining margins and inventory
gains. The y-o-y performance was mixed, with BCP and IRPC
expected show strong y-o-y improvement while TOP’s profit is
expected to be flat. The details on each company are shown in
Figure 9 below.
Figure 7: Market GRM comparison (9M16)
Source: Company data, DBS Vickers
Valuation
We have bumped up the TP of three stocks, i.e. IRPC, PTTGC
and TOP, by applying a higher PBV for 2017. This PBV multiple is
derived from the previous cycle of oil price recovery. We
maintain our TP for BCP which already reflects such a multiple.
BCP remains our top pick for the sector on its attractive
valuation and share price performance. We expect the upward
earnings momentum to continue in 2017F as a result of planned
shutdowns in 2016. We expect its refinery to operate at an
average capacity of c.105-110kbd in 2017F, up from 98kbd in
2016 if the market GRM stays at around US$6-7/bbl. We believe
the market’s pessimism on its E&P segment could be eased
given the better oil price outlook. Nonetheless, the upside
potential to our TP for BCP, IRPC and PTTGC looks indifferent
after the TP revision for the latter two stocks. We are more
positive on IRPC and rating upgrade from HOLD to BUY. We
think that the positive impact from its new plant under the
Upstream Project for Hygiene and Value Added Products (UHV)
project would be more apparent in 2017F.
Figure 8: Target price and rating changes
Company Target price Rating
Previous Current % change Previous Current
BCP 39.00 39.00 0.0 BUY BUY
IRPC 5.30 6.00 13.2 HOLD BUY
PTTGC 69.00 79.00 14.5 BUY BUY
TOP 65.00 77.00 18.5 HOLD HOLD
Source: DBS Vickers
For PTTGC, we maintain our BUY call on the stock on better
outlook for ethylene and its derivatives on the back of a more
balanced demand-supply situation. Its earnings growth could be
strong y-o-y, following several unplanned outages in 2016.
PTTGC’s valuation is also attractive, compared with its regional
peers.
Figure 9: Share price performance
Source: Bloomberg Finance LP, DBS Vickers
We maintain our HOLD rating for TOP due to its highest PBV
multiple for 2017 while it could offer the best dividend yield
among local peers. Its earnings could be dragged by the
weaker spread for aromatics products due to huge capacity
additions by regional players.
Nonetheless, we believe that Thailand’s oil refinery stocks are
still trading at more attractive levels than regional peers with
the average P/E for 2017F at 8-11x, compared with the
regional average of 12x, with more generous dividend yields
of 3.6-5.3% vs. regional peers’ 3.1%.
Industry Focus
Page 5
Figure 10: Preview 4Q16F – Thai oil refiners
Company Bt, m 4Q15 3Q16 4Q16E y-o-y% q-o-q% Comment
BCP Sales 35,136 36,686 39,142 11.4% 6.7% We expect BCP’s base GRM to improve slightly from
US$5.6/bbl in 3Q16 to US$6.3/bbl in 4Q16, in line with
the market. Its marketing margin of Bt0.8/litre could also
be sustained in 4Q16. We believe the company would
continue to operate its refinery at a high utilisation rate of
>95%, based on nameplate capacity of 120kbd to achieve
the target crude run of 98kbd for full-year 2016, down
from 113kbd in 2015 due to 45-days planned
maintenance shutdown in 1Q16. Apart from better GRM,
its net profit is expected to improve q-o-q on inventory
gains.
EBITDA 1,586 2,779 3,721 134.6% 33.9%
Core profit 1,614 1,402 1,067 -33.9% -23.9%
Net profit (112) 1,178 1,519 nm 28.9%
EPS (Bt/share) (0.08) 0.86 1.10 nm 28.9%
IRPC Sales 49,024 45,673 52,960 8.0% 16.0% IRPC’s earnings performance is likely to improve further q-
o-q due to higher GRM, driven by wider cracker spread of
fuel oil and gasoline. Meanwhile, the product spread of
petrochemical segment has weakened q-o-q, mainly
Propylene and Polypropylene (PP) whose spread declined
19% and 9% q-o-q, respectively. Its profit would also be
supported by an inventory gain of c.Bt530m due to higher
oil prices. We estimate its utilisation rate to remain
unchanged from 3Q16 as the operation of the UHV unit
commenced in 2Q16.
EBITDA 2,066 3,098 4,314 108.8% 39.2%
Core profit 3,197 1,768 1,820 -43.1% 3.0%
Net profit 447 1,307 1,620 262.5% 24.0%
EPS (Bt/share) 0.02 0.06 0.08 262.5% 24.0%
PTTGC Sales 96,088 89,714 106,802 11.2% 19.0% We expect PTTGC to report better performance in 4Q16,
both y-o-y and q-o-q. The net profit could reach Bt7.5bn,
the highest quarterly number for 2016, driven by better
product margins and inventory gains. We expect the
company to maintain a high utilisation rate for its refinery
at c.100% in 4Q16. The operation at its ethylene crackers
should also be maximised to reap benefits from the
planned shutdowns of other producers in Thailand and
strong demand. Although the product spread for
aromatics declined 11% q-o-q but this could be offset by
higher sales volume given the planned shutdown for some
of the aromatics plants in 3Q16.
EBITDA 10,386 12,210 14,413 38.8% 18.0%
Core profit 3,672 5,238 5,497 49.7% 4.9%
Net profit 4,690 6,226 7,529 60.5% 20.9%
EPS (Bt/share) 1.04 1.38 1.67 60.5% 20.9%
TOP Sales 68,446 68,476 77,260 12.9% 12.8% TOP’s net profit is expected to improve 27.4% q-o-q due
to better GRM and inventory gain of c.Bt2bn in 4Q16
while we estimate that it had to book a foreign exchange
loss of Bt750m on its USD loans. We expect the company’s
market GIM to improve slightly from US$6.7/bbl in 3Q16
to US$6.9/bbl in 4Q16, reflecting better refining margins
and the lower product spread of aromatics. The operation
of all three main units, i.e. oil refinery, aromatics and lube
base oil should be normalised in the last quarter of 2016.
EBITDA 5,114 5,118 8,697 70.1% 69.9%
Core profit 2,378 2,216 4,583 92.7% 106.8%
Net profit 3,749 2,941 3,746 -0.1% 27.4%
EPS (Bt/share) 1.84 1.44 1.84 -0.1% 27.4%
Source: Company, DBS Vickers
Industry Focus
Page 6
Figure 11: Peers Comparison Market PE P/BV EV/EBITDA Div Yld ROE
Cap (x) (x) (x) (%) (%)
BB Ticker Name US$m 16F 17F 16F 17F 16F 17F 16F 16F
CTX AU Caltex Australia 5,679 14.5 13.0 2.7 2.4 8.1 7.5 3.6 19.2
WPL AU Woodside Petroleum 20,275 23.5 18.6 1.8 1.7 9.3 8.0 2.7 5.8
135 HK Kunlun Energy 6,305 10.9 10.8 1.0 0.9 4.5 4.6 2.4 9.1
386 HK China Petroleum & Chemical-H 101,476 16.0 12.8 1.0 1.0 5.8 5.2 2.9 6.2
933 HK Brightoil Petroleum Holdings 3,118 29.8 18.3 2.0 1.8 8.9 6.9 1.3 7.3
BPCL IN Bharat Petroleum Corp 15,379 12.9 11.9 2.9 2.5 8.9 7.9 2.5 25.6
HPC LIN Hindustan Petroleum Corp 8,429 10.3 10.3 2.7 2.3 7.1 7.2 2.5 29.7
IOCL IN Indian Oil Corp 28,228 9.3 9.6 2.0 1.8 7.2 7.2 3.1 22.1
RIL IN Reliance Industries 49,619 11.1 10.9 1.2 1.1 10.0 8.3 1.2 11.0
1605 JP Inpex Corp 13,982 53.8 24.2 0.6 0.5 4.6 3.2 1.7 0.8
5012 JP Tonengeneral Sekiyu 4,312 11.9 11.1 1.9 1.8 7.3 6.7 3.3 14.2
5017 JP Fuji Oil Co 268 2.7 7.0 0.5 0.5 5.4 7.5 1.6 19.1
010950 KS S-Oil Corp 7,989 7.9 7.3 1.3 1.2 7.0 6.2 4.3 17.8
PETD MK Petronas Dagangan 5,258 26.6 25.6 4.5 4.3 14.6 14.1 2.9 16.8
PCOR PM Petron Corp 1,782 14.2 11.2 1.4 1.2 7.5 6.9 0.8 9.7
CAO SP China Aviation Oil Singapore 914 11.1 9.8 1.9 1.7 13.0 12.3 1.8 12.5
BCP TB Bangchak Petroleum 1,385 9.1 7.9 1.3 1.2 4.8 4.0 4.5 14.5
ESSO TB Esso Thailand 1,195 9.8 8.0 2.2 1.8 8.6 7.5 - 26.4
IRPC TB IRPC 3,091 11.1 11.2 1.3 1.2 8.3 8.1 3.6 12.5
PTTGC TB PTT Global Chemical 8,784 13.9 11.7 1.3 1.2 7.9 6.8 4.1 9.5
SPRC TB Star Petroleum Refining 1,547 8.0 8.3 1.4 1.3 5.1 5.4 7.0 18.6
TOP TB Thai Oil 4,177 8.7 10.0 1.4 1.3 5.4 4.9 5.3 17.2
6505 TT Formosa Petrochemical Corp 32,021 16.4 17.3 3.4 3.3 11.0 11.7 4.7 21.0
GAS VN PetroVietnam Gas Joint Stock 5,073 16.1 14.3 2.7 2.5 8.3 7.4 4.8 17.3
Average (simple)* 13.3 12.0 1.9 1.7 8.0 7.5 3.1 15.8
Source: Bloomberg Finance LP, DBS Vickers Note: Closing date is 7 February 2017
ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa:CS, PY
BUY Last Traded Price ( 8 Feb 2017): Bt34.50 (SET : 1,589.29)
Price Target 12-mth: Bt39.00 (13% upside)
Potential Catalyst: Improving gross refining margins
Where we differ: We are more optimistic on gross refining margins
Analyst Chaipat THANAWATTANO +66 2657 7827 [email protected]
Price Relative
Forecasts and Valuation FY Dec (Bt m) 2015A 2016F 2017F 2018F
Revenue 151,140 123,569 141,687 151,961 EBITDA 11,542 12,655 13,863 14,474 Pre-tax Profit 4,770 6,476 8,069 8,671 Net Profit 4,151 5,340 6,177 6,630 Net Pft (Pre Ex.) 4,600 5,340 6,177 6,630 Net Pft Gth (Pre-ex) (%) 671.7 16.1 15.7 7.3 EPS (Bt) 3.01 3.88 4.49 4.81 EPS Pre Ex. (Bt) 3.34 3.88 4.49 4.81 EPS Gth Pre Ex (%) 672 16 16 7 Diluted EPS (Bt) 3.01 3.88 4.49 4.81 Net DPS (Bt) 2.00 1.60 1.80 2.00 BV Per Share (Bt) 25.8 27.8 30.6 33.5 PE (X) 11.4 8.9 7.7 7.2 PE Pre Ex. (X) 10.3 8.9 7.7 7.2 P/Cash Flow (X) 3.9 3.1 4.9 4.4 EV/EBITDA (X) 6.0 4.7 4.0 3.5 Net Div Yield (%) 5.8 4.6 5.2 5.8 P/Book Value (X) 1.3 1.2 1.1 1.0 Net Debt/Equity (X) 0.6 0.3 0.2 0.0 ROAE (%) 12.1 14.5 15.4 15.0 Earnings Rev (%): 0 0 0 Consensus EPS (Bt): 3.67 3.95 4.40 Other Broker Recs: B: 11 S: 0 H: 6
Source of all data on this page: Company, DBS Vickers, Bloomberg Finance L.P
Optimism on profit outlook Underperformance was overdone. Bangchak Petroleum Pcl (BCP)’s share price improved 5.2% in early 2017, after a underperforming the market in 2016. We believe market sentiment on the stock should improve this year on better earnings outlook and easing concerns over its E&P business which was a drag on the overall earnings of the company when oil prices were very low. Trading at attractive valuations and offering dividend yields of 5-6% during 2016-18F, we maintain our BUY call with TP at Bt39/share. 4Q16E earnings preview. We expect BCP’s base gross refining margin (GRM) to improve slightly from US$5.6 per barrel (bbl) in 3Q16 to US$6.3/bbl in 4Q16E. Its marketing margin of Bt0.8/litre should also be sustained in 4Q16. We believe the company would continue to operate its refinery at a high utilisation rate of >95%, based on nameplate capacity of 120k barrels per day (bd) to achieve the target crude run of 98kbd for 2016E, down from 113kbd in 2015. Apart from better GRM, net profit is expected to improve q-o-q on inventory gains. BCP’s earnings could be driven by better GRM. Although we expect BCP’s market GRM to ease to more sustainable levels of US$6-7/bbl for 2016E-18F, its earnings outlook should continue to improve, driven by a gradual increase in GRM. Its oil marketing and solar power businesses should continue to generate stable cash flows. These two segments are the key factors to reduce BCP’s earnings volatility in the longer term.
Valuation:
BCP’s valuation is undemanding at 7.7x 2017 PE, compared
with 13x average for regional peers. We also expect the
company to maintain its dividend yield of 5-6% for 2016E-18F.
Our TP of Bt39 comprises Bt28 (based on 1.3x PBV) for the oil-
related businesses and Bt11 (based on DCF) for the solar
business.
Key Risks to Our View:
Volatile oil price is the key risk
Refiners’ earnings are volatile because of inventory gains/losses
following changes in crude oil prices each quarter. BCP
mitigates this volatility by hedging and has a good track
record. BCP has a policy of hedging up to 30% of its output. At A Glance
Issued Capital (m shrs) 1,377
Mkt. Cap (Btm/US$m) 47,504 / 1,356
Major Shareholders (%)
PTT 27.2
Ministry of Finance 10.0
Thai NVDR 4.6
Free Float (%) 62.7
3m Avg. Daily Val (US$m) 3.5
ICB Industry : Oil & Gas / Oil & Gas Producers
DBS Group Research . Equity
9 Feb 2017
Thailand Company Guide
Bangchak Petroleum Pcl Version 5 | Bloomberg: BCP TB | Reuters: BCP.BK Refer to important disclosures at the end of this report
66
86
106
126
146
166
186
206
23.0
28.0
33.0
38.0
43.0
Feb-13 Feb-14 Feb-15 Feb-16 Feb-17
Relative IndexBt
Bangchak Petroleum Pcl (LHS) Relative SET (RHS)
ASIAN INSIGHTS VICKERS SECURITIES
Page 2
Company Guide
Bangchak Petroleum Pcl
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Crude run to be ramped up in 2017. We expect BCP’s crude
run to increase in 2017, up from 98-100kbd in 2016. The
company is able to ramp up the refinery to above its 2000-2014
average of 87kbd (73% utilisation) because of the new crude
distillate unit (CDU), which was installed in 2014 to replace the
one damaged by fire in 2012. The new CDU increases BCP’s
crude distillation capacity by 20kbd to 140kbd. BCP had
optimised its crude run to capture favourable GRMs in 2015 but
its crude run declined in 2016 due to planned maintenance
shutdowns in 1Q16.
GRM should normalise in 2016E-18 after its peak in 2015. GRM
is the critical factor for BCP’s earnings from oil refining business.
We expect its abnormally high GRM in 2015 to ease to more
sustainable levels at US$6-7/bbl in 2016E-18F. There would be
upside from inventory gains in 2016 from higher crude oil prices
in 4Q16. Nonetheless, we expect GRM to be affected by
capacity additions in the region, especially for middle distillate
products.
Oil marketing business will continue to benefit from higher oil
demand in domestic market. BCP’s marketing margins should
be sustainable at Bt0.7/litre, after registering a strong
Bt0.76/litre in 2015, following the sharp decline in oil prices as
well as energy price deregulation and restructuring in Thailand.
The outlook for BCP’s marketing business is solid, given its
strong foothold in the retail oil market (with the second largest
market share after PTT). Stable earnings from the marketing
business will be able to offset volatile profits from the oil
refining segment.
More solar capacity to be added into portfolio. The capacity of
BCP’s solar farms will continue to increase after its subsidiary,
BCPG Plc (BCPG) acquired SunEdison Japan with incremental
capacity of 198MW. Only 13MW is in operation currently, with
another 27MW under construction and coming onstream
during 2016E-18. We assume only 13MW additional capacity in
our earnings forecast. Management is keen on expanding the
total capacity of the renewable power business to 500MW by
2020, including solar farms and a geothermal power plant in
Indonesia. Note that BCPG was listed on the stock market in
Sep 2016.
EBITDA contribution from solar business will gradually increase
from new capacity in Japan. We estimate EBITDA contribution
from the solar business will be steady at Bt3bn p.a. for the next
three years, and account for 21% of group EBITDA in 2016E-
17F. The EBITDA contribution from the solar power business will
gradually increase when new capacity of the business in Japan
comes online from 2016 onwards.
Crude run (kbd)
Base GRM (US$/bbl)
Marketing margin (Bt/litre)
Total capacity - Solar (MW) YE
EBITDA contribution - Solar (Bt, mn)
Source: Company, DBS Vickers
86.5
113
100105 105
0.0
16.3
32.6
48.9
65.2
81.5
97.8
114.1
2014A 2015A 2016F 2017F 2018F
6.96
9.05
6.216.78 6.92
0.0
1.8
3.7
5.5
7.4
9.2
2014A 2015A 2016F 2017F 2018F
0.710.76
0.7 0.7 0.7
0.00
0.16
0.31
0.47
0.62
0.78
2014A 2015A 2016F 2017F 2018F
118 118
131 131 131
0.0
26.5
52.9
79.4
105.8
132.3
2014A 2015A 2016F 2017F 2018F
2572
30053147
3552
3896
0.0
787.0
1574.1
2361.1
3148.1
3935.2
2014A 2015A 2016F 2017F 2018F
ASIAN INSIGHTS VICKERS SECURITIES
Page 3
Company Guide
Bangchak Petroleum Pcl
Balance Sheet:
Improving financials. BCP’s financial position is expected to
improve gradually, as its D/E ratio drops from 0.9x to 0.6-0.7x
by 2017, driven by steady profit growth – thanks to stable
earnings from the marketing and solar power businesses. Asset
turnover could dip in 2016E, following a 45-day planned
maintenance shutdown to further improve refinery efficiency
under its 3E (Efficiency, Energy and Environment) improvement
programme. The programme will be implemented over the next
3-4 years up to 2020, when its refinery is upgraded to one of
the most complex in Thailand.
Share Price Drivers:
Attractive valuation and yield. BCP is trading at less than 8x PE
based on forecast earnings for the next three years, compared
with >13x for regional peers. And the stock offers good
dividend yields of 5-6% over the same period. This could attract
investors who are looking for beneficiaries of rising oil demand
in the domestic market. BCP’s profit will be less volatile than
that of oil refineries which do not have retail outlets. The stable
cash flow from its solar business could also cushion the impact
of volatile oil prices.
Recurring income from alternative energy business. BCP should
be able to reap the benefit from the expansion of renewable
power business of its subsidiary, BCPG. In addition to its existing
solar power businesses in Thailand and Japan, BCPG has
recently announced the acquisition of a wind power generation
asset in the Philippines. We believe that earnings contribution
from renewable power business would continue to increase its
role in BCP’s profit and cash flow.
Key Risks:
Earnings exposed to crude oil volatility. Refiners’ earnings are
volatile due to inventory gains/losses, following changes in
crude oil prices each quarter. BCP mitigates the volatility by
hedging and has a good track record, booking hedging gains
over the past seven quarters. The company has a policy of
hedging up to 30% of its output. Another risk is impairment
charge at its E&P business if oil prices head on a downward
trend.
Company Background
BCP operates a 120-kbd oil refinery located in Bangkok. Its
refined oil products are distributed via petrol stations under its
retail marketing segment. BCP also invests in alternative
energy, mainly solar and bio fuel.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, DBS Vickers
1.4
1.6
1.8
2.0
2.2
2.4
0.00
0.20
0.40
0.60
0.80
1.00
2014A 2015A 2016F 2017F 2018F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
8,000.0
2014A 2015A 2016F 2017F 2018F
Capital Expenditure (-)
Btm
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2014A 2015A 2016F 2017F 2018F
Avg: 15.2x
+1sd: 26.4x
+2sd: 37.6x
-1sd: 4x
-6.4
3.6
13.6
23.6
33.6
43.6
53.6
63.6
Feb-13 Feb-14 Feb-15 Feb-16 Feb-17
(x)
Avg: 1.3x
+1sd: 1.42x
+2sd: 1.55x
-1sd: 1.17x
-2sd: 1.04x
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
Feb-13 Feb-14 Feb-15 Feb-16 Feb-17
(x)
ASIAN INSIGHTS VICKERS SECURITIES
Page 4
Company Guide
Bangchak Petroleum Pcl
Key Assumptions
FY Dec 2014A 2015A 2016F 2017F 2018F
Crude run (kbd) 86.5 113 100 105 105 Base GRM (US$/bbl) 6.96 9.05 6.21 6.78 6.92 Marketing margin (Bt/litre) 0.71 0.76 0.70 0.70 0.70 Total capacity - Solar (MW) YE 118 118 131 131 131 EBITDA contribution - Solar (Bt, mn) 2,572 3,005 3,147 3,552 3,896
Income Statement (Btm) FY Dec 2014A 2015A 2016F 2017F 2018F
Revenue 183,016 151,140 123,569 141,687 151,961
Cost of Goods Sold (178,473) (139,686) (111,856) (128,686) (138,013)
Gross Profit 4,543 11,454 11,713 13,001 13,948
Other Opng (Exp)/Inc (4,480) (5,175) (4,448) (4,676) (5,167)
Operating Profit 63.1 6,279 7,265 8,325 8,781
Other Non Opg (Exp)/Inc 1,197 543 532 586 678
Associates & JV Inc 5.15 12.4 12.7 12.9 13.2
Net Interest (Exp)/Inc (1,427) (1,615) (1,333) (855) (801)
Exceptional Gain/(Loss) 99.8 (449) 0.0 0.0 0.0
Pre-tax Profit (61.5) 4,770 6,476 8,069 8,671
Tax 691 (673) (940) (1,171) (1,259)
Minority Interest 66.9 53.4 (197) (721) (782)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 696 4,151 5,340 6,177 6,630
Net Profit before Except. 596 4,600 5,340 6,177 6,630
EBITDA 4,579 11,542 12,655 13,863 14,474
Growth
Revenue Gth (%) (1.9) (17.4) (18.2) 14.7 7.3
EBITDA Gth (%) (52.2) 152.1 9.6 9.5 4.4
Opg Profit Gth (%) (98.7) 9,854.4 15.7 14.6 5.5
Net Profit Gth (Pre-ex) (%) (87.1) 671.7 16.1 15.7 7.3
Margins & Ratio
Gross Margins (%) 2.5 7.6 9.5 9.2 9.2
Opg Profit Margin (%) 0.0 4.2 5.9 5.9 5.8
Net Profit Margin (%) 0.4 2.7 4.3 4.4 4.4
ROAE (%) 2.0 12.1 14.5 15.4 15.0
ROA (%) 0.9 5.2 6.4 7.0 7.1
ROCE (%) (1.3) 4.3 5.5 7.0 7.3
Div Payout Ratio (%) 197.9 66.3 41.3 40.1 41.5
Net Interest Cover (x) 0.0 3.9 5.4 9.7 11.0
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES
Page 5
Company Guide
Bangchak Petroleum Pcl
Quarterly / Interim Income Statement (Btm)
FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016
Revenue 35,203 35,136 30,276 37,262 36,686
Cost of Goods Sold (33,118) (33,097) (29,327) (32,986) (33,774)
Gross Profit 2,085 2,039 949 4,276 2,912
Other Oper. (Exp)/Inc (1,133) (1,672) (1,212) (1,433) (1,473)
Operating Profit 952 367 (264) 2,843 1,439
Other Non Opg (Exp)/Inc 201 98.8 126 111 113
Associates & JV Inc (1.8) 3.71 12.6 (5.8) (1.3)
Net Interest (Exp)/Inc (391) (412) (373) (327) (369)
Exceptional Gain/(Loss) (332) (266) 305 252 183
Pre-tax Profit 429 (208) (193) 2,874 1,365
Tax (5.6) 17.2 167 (459) (233)
Minority Interest 8.72 78.6 72.0 2.50 46.6
Net Profit 432 (112) 46.6 2,417 1,178
Net profit bef Except. 764 154 (259) 2,165 995
EBITDA 2,356 1,689 973 3,967 2,891
Growth
Revenue Gth (%) (14.9) (0.2) (13.8) 23.1 (1.5)
EBITDA Gth (%) (53.1) (28.3) (42.3) 307.5 (27.1)
Opg Profit Gth (%) (73.9) (61.4) nm nm (49.4)
Net Profit Gth (Pre-ex) (%) (72.5) (79.9) nm nm (54.0)
Margins
Gross Margins (%) 5.9 5.8 3.1 11.5 7.9
Opg Profit Margins (%) 2.7 1.0 (0.9) 7.6 3.9
Net Profit Margins (%) 1.2 (0.3) 0.2 6.5 3.2
Balance Sheet (Btm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Net Fixed Assets 38,136 40,044 38,626 36,951 34,167
Invts in Associates & JVs 762 774 783 792 801
Other LT Assets 5,773 7,324 7,338 7,352 7,366
Cash & ST Invts 8,577 12,390 20,776 24,568 30,364
Inventory 14,059 13,945 11,393 13,224 14,237
Debtors 5,835 5,234 5,078 5,823 6,245
Other Current Assets 3,824 2,230 2,235 2,239 2,244
Total Assets 76,966 81,942 86,229 90,950 95,424
ST Debt
1,312 1,026 1,026 1,000 1,000
Creditor 5,774 4,994 7,329 8,476 9,110
Other Current Liab 4,223 4,468 4,468 4,468 4,468
LT Debt 28,886 32,632 31,606 30,606 29,606
Other LT Liabilities 2,804 2,838 2,841 2,844 2,847
Shareholder’s Equity 33,309 35,481 38,259 42,137 46,191
Minority Interests 657 502 699 1,420 2,202
Total Cap. & Liab. 76,966 81,942 86,229 90,950 95,424
Non-Cash Wkg. Capital 13,720 11,947 6,908 8,342 9,147
Net Cash/(Debt) (21,621) (21,268) (11,856) (7,038) (241)
Debtors Turn (avg days) 14.5 13.4 15.2 14.0 14.5
Creditors Turn (avg days) 18.0 14.6 21.0 23.3 24.1
Inventory Turn (avg days) 32.5 37.9 43.2 36.3 37.7
Asset Turnover (x) 2.4 1.9 1.5 1.6 1.6
Current Ratio (x) 2.9 3.2 3.1 3.3 3.6
Quick Ratio (x) 1.3 1.7 2.0 2.2 2.5
Net Debt/Equity (X) 0.6 0.6 0.3 0.2 0.0
Net Debt/Equity ex MI (X) 0.6 0.6 0.3 0.2 0.0
Capex to Debt (%) 24.3 13.8 10.5 10.3 7.2
Z-Score (X) 3.8 3.4 3.1 3.3 3.5
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES
Page 6
Company Guide
Bangchak Petroleum Pcl
Cash Flow Statement (Btm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Pre-Tax Profit (61.5) 4,770 6,476 8,069 8,671
Dep. & Amort. 3,313 4,708 4,846 4,939 5,002
Tax Paid 691 (673) (940) (1,171) (1,259)
Assoc. & JV Inc/(loss) (5.2) (12.4) (12.7) (12.9) (13.2)
Chg in Wkg.Cap. 157 1,773 5,039 (1,434) (805)
Other Operating CF 2,027 1,586 (195) (719) (780)
Net Operating CF 6,121 12,153 15,213 9,670 10,816
Capital Exp.(net) (7,350) (4,645) (3,428) (3,264) (2,218)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV (5.2) (12.4) (8.9) (9.0) (9.2)
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF (2,687) (6,686) 0.0 0.0 0.0
Net Investing CF (10,042) (11,343) (3,437) (3,273) (2,227)
Div Paid (1,946) (2,039) (2,561) (2,299) (2,575)
Chg in Gross Debt 9,369 3,460 (1,026) (1,026) (1,000)
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF (2,075) (2,313) 197 721 782
Net Financing CF 5,348 (893) (3,391) (2,605) (2,793)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash 1,427 (82.4) 8,385 3,792 5,796
Opg CFPS (Bt) 4.33 7.54 7.39 8.06 8.44
Free CFPS (Bt) (0.9) 5.45 8.56 4.65 6.24
Source: Company, DBS Vickers
Target Price & Ratings History
Source: DBS Vickers
Analyst: Chaipat THANAWATTANO
THAI-CAC Certified
Corporate Governance CG Rating 2016
THAI-CAC is Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorised into:
Score Description
Declared Companies that have declared their intention to join CAC
Certified Companies certified by CAC.
Corporate Governance CG Rating is based on Thai Institute of
Directors (IOD)’s annual assessment of corporate governance practices of listed companies. The assessment covers 235 criteria in five categories including board responsibilities (35% weighting), disclosure and transparency (20%), role of stakeholders (20%), equitable treatment of shareholders (10%) and rights of shareholders (15%). The IOD then assigns numbers of logos to each company based on their scoring as follows:
Score Range Number of Logo Description
90-100 Excellent
80-89 Very Good
70-79 Good
60-69 Satisfactory
50-59 Pass
<50 No logo given N/A
S.No.Date of
Report
Closing
Price
12-mth
Target
Price
Rat ing
1: 24 Feb 16 30.25 39.00 BUY
2: 07 Apr 16 29.75 39.00 BUY
3: 20 Apr 16 30.75 39.00 BUY
4: 26 Apr 16 31.00 39.00 BUY
5: 03 May 16 30.50 39.00 BUY
6: 13 May 16 30.00 39.00 BUY
7: 19 May 16 30.00 39.00 BUY
8: 27 Jun 16 30.25 39.00 BUY
9: 08 Jul 16 33.75 39.00 BUY
10: 01 Aug 16 34.00 39.00 BUY
11: 09 Aug 16 35.75 39.00 BUY
12: 19 Sep 16 31.50 39.00 BUY
13: 29 Sep 16 31.00 39.00 BUY
14: 12 Oct 16 29.25 39.00 BUY
Note : Share price and Target price are adjusted for corporate actions. 15: 31 Oct 16 30.25 39.00 BUY
16: 10 Nov 16 32.50 39.00 BUY
17: 01 Dec 16 33.25 39.00 BUY
1
23
4
5
6
7
8
9
10
11
12
131415
16
17
27.07
29.07
31.07
33.07
35.07
37.07
Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17
Bt
ASIAN INSIGHTS VICKERS SECURITIES ed: JS / sa:CS, PY
BUY (Upgrade from HOLD)
Last Traded Price ( 8 Feb 2017): Bt5.25 (SET : 1,589.29)
Price Target 12-mth: Bt6.00 (14% upside) (Prev Bt5.30)
Potential Catalyst: Better operation of UHV unit
Where we differ: We are more cautious on product spreads
Analyst Chaipat THANAWATTANO +66 2657 7827 [email protected]
Price Relative
Forecasts and Valuation FY Dec (Bt m) 2015A 2016F 2017F 2018F
Revenue 214,172 172,444 209,599 217,465 EBITDA 15,803 18,958 18,423 18,994 Pre-tax Profit 11,769 10,381 11,422 12,147 Net Profit 9,402 9,795 9,680 10,297 Net Pft (Pre Ex.) 7,010 11,395 9,680 10,297 Net Pft Gth (Pre-ex) (%) nm 62.6 (15.0) 6.4 EPS (Bt) 0.46 0.48 0.47 0.50 EPS Pre Ex. (Bt) 0.34 0.56 0.47 0.50 EPS Gth Pre Ex (%) nm 63 (15) 6 Diluted EPS (Bt) 0.46 0.48 0.47 0.50 Net DPS (Bt) 0.22 0.19 0.19 0.20 BV Per Share (Bt) 3.71 3.98 4.27 4.58 PE (X) 11.4 11.0 11.1 10.4 PE Pre Ex. (X) 15.3 9.4 11.1 10.4 P/Cash Flow (X) 3.9 10.1 6.6 6.7 EV/EBITDA (X) 10.0 8.3 8.1 7.3 Net Div Yield (%) 4.2 3.6 3.6 3.8 P/Book Value (X) 1.4 1.3 1.2 1.1 Net Debt/Equity (X) 0.7 0.6 0.5 0.3 ROAE (%) 13.1 12.5 11.5 11.4 Earnings Rev (%): 0 0 0 Consensus EPS (Bt): 0.50 0.52 0.57 Other Broker Recs: B: 16 S: 1 H: 5
Source of all data on this page: Company, DBS Vickers, Bloomberg Finance L.P
Upgrading to BUY Upgrade rating to BUY on higher TP. IRPC PCL (IRPC)’s share price outperformed the market in early 2017, up 10.4% year-to-date. We believe this reflects better investor sentiment on the operation of the new product upgrading unit under the Upstream Project for Hygiene and Value Added Product (UHV project). We raised our TP by 13% to Bt6.00 by assigning a higher P/BV multiple to reflect the recovery in oil prices. We also upgrade our rating on the stock from HOLD to BUY.
4Q16E earnings. estimate. IRPC’s 4Q16E earnings is likely to have improved further q-o-q due to higher gross refining margins (GRM), driven by wider cracker spreads of fuel oil and gasoline. Meanwhile, product spreads of the petrochemical segment were weaker q-o-q, mainly for Propylene and Polypropylene (PP) where spreads declined by 19% and 9% q-o-q, respectively. We estimate that 4Q16E profit would also be supported by an inventory gain of c.Bt530m from higher oil prices. Utilisation rate is likely to remain unchanged from 3Q16 as the operation of the UHV unit only commenced in 2Q16.
UHV project should support margins in 2017F. While GRMs are likely to improve in 2017F although still below the abnormally high levels in 2015, we believe the UHV project will be a key pillar to hold up IRPC’s overall margin in 2017. However, the potential benefit from the UHV project to IRPC’s gross integrated margin (GIM) for 2017F could be slightly better, raising it by US$1.5-2 per barrel (bbl) to US$12.9, due to higher utilisation rate as production ramp-up of the unit is improving.
Valuation:
We apply a higher P/BV multiple to derive a new TP of Bt6/sh
for IRPC. The P/BV is raised from 1.3x to 1.4x to reflect the
average trading multiple during the last oil price recovery. This
offers capital gains of 14% to investors from the current price
and the dividend yield of nearly 4% for 2016-17F is still
attractive.
Key Risks to Our View:
Volatile oil price is key to its earnings performance via
inventory gains or losses. Further, new capacity in the region
may continue to pressure GIMs this year, as the bulk of new
capacity will be in the Middle East, China and India, especially
for diesel. Another risk is the slower-than-expected ramp-up of
the UHV project’s operation. At A Glance Issued Capital (m shrs) 20,434
Mkt. Cap (Btm/US$m) 107,281 / 3,063
Major Shareholders (%)
PTT Pcl 38.5
Government Savings Bank 9.5
Government Pension Fund 4.9
Free Float (%) 46.9
3m Avg. Daily Val (US$m) 16.9
ICB Industry : Basic Materials / Chemicals
DBS Group Research . Equity
9 Feb 2017
Thailand Company Guide
IRPC PCL Version 5 | Bloomberg: IRPC TB | Reuters: IRPC.BK Refer to important disclosures at the end of this report
60
80
100
120
140
160
180
200
220
2.6
3.1
3.6
4.1
4.6
5.1
5.6
Feb-13 Feb-14 Feb-15 Feb-16 Feb-17
Relative IndexBt
IRPC PCL (LHS) Relative SET (RHS)
ASIAN INSIGHTS VICKERS SECURITIES
Page 2
Company Guide
IRPC PCL
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Upgrading the unit could drive crude run higher. IRPC’s crude
run during the last five years hovered in a range of 160-176k
barrels per day (74-82% utilisation) as the company had to
optimise its operating rate to minimise fuel oil output. We
estimate the crude run could soften slightly from 183k barrels
per day in 2015 to 181k in 2016E due to its plant optimisation
strategy for the refinery. The refinery shutdown was postponed
to 2017 as the ramp-up of the UHV project was slower than
expected. We expect the UHV project will enable the company
to raise its crude run further to 194-196k barrels per day (95%
utilisation) in 2018F, as IRPC’s fuel oil output could be upgraded
to propylene with better margins. Its fuel oil output would then
drop from >40% of total production to only 8%.
Market GIM in 2016F could soften y-o-y. We estimate IRPC’s
gross integrated margin (GIM) to soften from US$14/barrel (bbl)
in 2015 to a more sustainable level of US$12.5/bbl in 2016 and
gradually improve in 2017-18F. This will be driven by favourable
gross refining margins (GRM)s from the oil refining segment as
a result of high demand for gasoline. Also behind the higher
GRM was the lower negative crack spread of fuel oil, which is
one of IRPC’s key products (23% of total products).
Operating expense is expected to be stable. We assume IRPC to
maintain its operating expense (opex) at US$5.7/bbl during
2016E-18F, unchanged from 2015. We believe opex would
improve further under the Delta Project, initiated by the
company’s goal to manage operating cost. We believe there
remains upside potential to earnings from the cost side in 2016-
17F, when the UHV project comes online.
Capex should have peaked. IRPC’s investment should have
peaked in 2014 when it had to inject funds into the UHV
project. The investment capex should continue to have decline
in 2017, but the bulk will still come from the UHV project and a
new 240MW-power plant which will supply electricity and
steam to the UHV project. We believe this will be financed by
cash flows generated from operations and more debt.
Higher oil price could raise operating cost. IRPC’s refinery
business should be impacted by the increase in crude oil prices
in the medium term, in our view, via more expensive feedstock
and energy costs, and larger working capital requirements. The
integrated production process of its refinery and petrochemical
complex usually requires the amount of fuel used and lost in the
refining process to be 6% of crude intake, which is higher than
its refinery peers (3-4%). Excluding the impact of inventory
gains, we estimate that IRPC’s profit could be affected by
c.1.8% for every US$1/bbl increase in oil prices.
Crude run (kbd)
Market GIM (US$/bbl)
OPEX (US$/bbl)
Capex (Bt m)
Dubai oil price (US$/bbl)
Source: Company, DBS Vickers
172183 181
194 196
0.0
28.2
56.5
84.7
112.9
141.1
169.4
197.6
2014A 2015A 2016F 2017F 2018F
7.71
14
12.5 12.9 12.6
0.0
2.9
5.7
8.6
11.4
14.3
2014A 2015A 2016F 2017F 2018F
5.27
5.72 5.72 5.72 5.72
0.00
1.17
2.33
3.50
4.67
5.83
2014A 2015A 2016F 2017F 2018F
22104
17219
6072
4190
1246
0.0
4465.0
8930.0
13395.0
17860.1
22325.1
2014A 2015A 2016F 2017F 2018F
96.6
51.2
42
5257
0.0
19.5
39.0
58.5
78.0
97.5
2014A 2015A 2016F 2017F 2018F
ASIAN INSIGHTS VICKERS SECURITIES
Page 3
Company Guide
IRPC PCL
Balance Sheet:
IRPC’s financial position is the weakest among oil refiners under
the PTT group due to the continuous investments made to
improve operating efficiency. Nonetheless, we expect its D/E
ratio to decline gradually from 2016E onwards, as the UHV
project came onstream in 3Q16. There remains an investment
of US$90m to be made to expand the capacity of its
polypropylene (PP) plant by 34% to 635ktpa, which will be
financed by internal cash flows.
Share Price Drivers:
Margin improvement from UHV project. We believe the market
has been optimistic on potential benefits from the UHV project
which will improve its GIM by US$1.5-2/bbl, based on 6-month
average product prices. This could be a near-term share price
catalyst if the project commences operations on schedule and
improves IRPC’s margins.
Key Risks:
Lower-than-expected oil prices could be a headwind for
earnings performance in 2017, as this could lead to stock
losses. Also, new capacity in the region will continue to
pressure GRMs this year, as the bulk of new capacity will be in
the Middle East, China and India, especially for diesel. Another
risk is the slower-than-expected ramp-up of the operation of
the UHV project.
Company Background
IRPC is a fully-integrated refinery and naphtha-based
petrochemical producer. Its refinery is the second largest in
Thailand with a capacity of 215kbd. The refinery and
petrochemical complex have been upgraded to improve
efficiency and product yield. The upgrade was completed in
2Q16 under UHV project, which enables the company to fully
run the refinery, compared with an utilisation rate of 85-87%
currently.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
PB Band (x)
Source: Company, DBS Vickers
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
2014A 2015A 2016F 2017F 2018F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
5,000.0
10,000.0
15,000.0
20,000.0
25,000.0
2014A 2015A 2016F 2017F 2018F
Capital Expenditure (-)
Btm
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2014A 2015A 2016F 2017F 2018F
Avg: 1.1x
+1sd: 1.25x
+2sd: 1.4x
-1sd: 0.94x
-2sd: 0.79x
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
Feb-13 Feb-14 Feb-15 Feb-16 Feb-17
(x)
ASIAN INSIGHTS VICKERS SECURITIES
Page 4
Company Guide
IRPC PCL
Key Assumptions
FY Dec 2014A 2015A 2016F 2017F 2018F
Crude run (kbd) 172 183 181 194 196
Market GIM (US$/bbl) 7.71 14.0 12.5 12.9 12.6
OPEX (US$/bbl) 5.27 5.72 5.72 5.72 5.72
Capex (Bt m) 22,104 17,219 6,072 4,190 1,246
Dubai oil price (US$/bbl) 96.6 51.2 42.0 52.0 57.0
Income Statement (Btm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Revenue 281,589 214,172 172,444 209,599 217,465
Cost of Goods Sold (287,930) (197,914) (154,852) (191,563) (198,676)
Gross Profit (6,341) 16,258 17,591 18,036 18,789
Other Opng (Exp)/Inc (5,444) (6,172) (4,970) (6,041) (6,267)
Operating Profit (11,785) 10,086 12,622 11,995 12,522
Other Non Opg (Exp)/Inc 604 444 448 457 467
Associates & JV Inc (139) (184) (49.0) (50.0) (50.0)
Net Interest (Exp)/Inc (1,454) (969) (1,040) (981) (791)
Exceptional Gain/(Loss) 5,163 2,392 (1,600) 0.0 0.0
Pre-tax Profit (7,611) 11,769 10,381 11,422 12,147
Tax 2,398 (2,346) (565) (1,721) (1,830)
Minority Interest (21.2) (21.4) (21.0) (21.0) (21.0)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit (5,235) 9,402 9,795 9,680 10,297
Net Profit before Except. (10,397) 7,010 11,395 9,680 10,297
EBITDA (6,110) 15,803 18,958 18,423 18,994
Growth
Revenue Gth (%) (3.8) (23.9) (19.5) 21.5 3.8
EBITDA Gth (%) nm nm 20.0 (2.8) 3.1
Opg Profit Gth (%) (1,873.5) nm 25.1 (5.0) 4.4
Net Profit Gth (Pre-ex) (%) (488.5) nm 62.6 (15.0) 6.4
Margins & Ratio
Gross Margins (%) (2.3) 7.6 10.2 8.6 8.6
Opg Profit Margin (%) (4.2) 4.7 7.3 5.7 5.8
Net Profit Margin (%) (1.9) 4.4 5.7 4.6 4.7
ROAE (%) (7.3) 13.1 12.5 11.5 11.4
ROA (%) (3.2) 5.8 6.1 6.0 6.3
ROCE (%) (9.3) 4.6 7.7 6.4 7.0
Div Payout Ratio (%) N/A 47.8 39.6 40.1 39.7
Net Interest Cover (x) (8.1) 10.4 12.1 12.2 15.8
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES
Page 5
Company Guide
IRPC PCL
Quarterly / Interim Income Statement (Btm)
FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016
Revenue 52,070 49,024 42,575 45,057 45,673
Cost of Goods Sold (49,339) (46,032) (38,001) (38,117) (42,200)
Gross Profit 2,731 2,992 4,574 6,940 3,473
Other Oper. (Exp)/Inc (1,361) (1,779) (1,381) (1,562) (1,595)
Operating Profit 1,370 1,212 3,193 5,377 1,879
Other Non Opg (Exp)/Inc 121 98.0 89.0 108 114
Associates & JV Inc (46.6) (29.5) (33.9) 24.6 31.9
Net Interest (Exp)/Inc (235) (215) (223) (219) (502)
Exceptional Gain/(Loss) (108) (584) (538) (729) (397)
Pre-tax Profit 1,101 482 2,487 4,562 1,126
Tax (210) (30.6) 537 (847) 189
Minority Interest (4.2) (4.5) (9.3) (9.1) (8.3)
Net Profit 887 447 3,014 3,706 1,307
Net profit bef Except. 996 1,031 3,553 4,435 1,704
EBITDA 2,832 2,673 4,616 6,890 3,727
Growth
Revenue Gth (%) (12.1) (5.9) (13.2) 5.8 1.4
EBITDA Gth (%) (58.0) (5.6) 72.7 49.3 (45.9)
Opg Profit Gth (%) (74.0) (11.5) 163.4 68.4 (65.1)
Net Profit Gth (Pre-ex) (%) (75.3) 3.5 244.7 24.8 (61.6)
Margins
Gross Margins (%) 5.2 6.1 10.7 15.4 7.6
Opg Profit Margins (%) 2.6 2.5 7.5 11.9 4.1
Net Profit Margins (%) 1.7 0.9 7.1 8.2 2.9
Balance Sheet (Btm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Net Fixed Assets 100,872 114,807 114,942 113,111 108,302
Invts in Associates & JVs 6,144 6,117 6,117 6,117 6,117
Other LT Assets 11,640 6,266 6,266 6,266 6,266
Cash & ST Invts 2,009 3,576 4,677 4,313 9,088
Inventory 25,344 21,306 16,320 20,333 21,109
Debtors 11,192 8,942 9,449 11,485 11,916
Other Current Assets 5,597 2,160 2,160 2,160 2,160
Total Assets 162,798 163,174 159,930 163,785 164,957
ST Debt
16,548 4,469 13,723 11,237 8,141
Creditor 25,815 25,741 16,320 22,875 23,748
Other Current Liab 4,466 6,000 5,816 5,816 5,816
LT Debt 44,243 49,235 40,716 34,683 31,747
Other LT Liabilities 3,822 1,850 1,850 1,850 1,850
Shareholder’s Equity 67,834 75,804 81,410 87,208 93,520
Minority Interests 70.2 73.5 94.5 116 137
Total Cap. & Liab. 162,798 163,174 159,930 163,785 164,957
Non-Cash Wkg. Capital 11,852 668 5,793 5,287 5,621
Net Cash/(Debt) (58,782) (50,128) (49,762) (41,607) (30,799)
Debtors Turn (avg days) 20.7 17.2 19.5 18.2 19.6
Creditors Turn (avg days) 40.1 48.9 51.5 38.6 44.2
Inventory Turn (avg days) 38.8 44.2 46.1 36.1 39.3
Asset Turnover (x) 1.7 1.3 1.1 1.3 1.3
Current Ratio (x) 0.9 1.0 0.9 1.0 1.2
Quick Ratio (x) 0.3 0.3 0.4 0.4 0.6
Net Debt/Equity (X) 0.9 0.7 0.6 0.5 0.3
Net Debt/Equity ex MI (X) 0.9 0.7 0.6 0.5 0.3
Capex to Debt (%) 36.4 32.1 11.2 9.1 3.1
Z-Score (X) 2.2 2.4 2.3 2.6 2.8
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES
Page 6
Company Guide
IRPC PCL
Cash Flow Statement (Btm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Pre-Tax Profit (7,611) 11,769 10,381 11,422 12,147
Dep. & Amort. 5,210 5,456 5,937 6,021 6,056
Tax Paid 2,398 (2,346) (565) (1,721) 0.0
Assoc. & JV Inc/(loss) 139 184 49.0 50.0 50.0
Chg in Wkg.Cap. 6,413 11,184 (5,126) 506 (334)
Other Operating CF (1,952) 1,592 (70.0) (71.0) (1,901)
Net Operating CF 4,596 27,840 10,606 16,207 16,018
Capital Exp.(net) (22,104) (17,219) (6,072) (4,190) (1,246)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV (139) 27.7 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 1,203 5,920 0.0 0.0 0.0
Net Investing CF (21,040) (11,271) (6,072) (4,190) (1,246)
Div Paid (2,041) (1,633) (4,189) (3,883) (3,985)
Chg in Gross Debt 17,761 (7,087) 735 (8,519) (6,033)
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF (2,391) (6,282) 21.0 21.0 21.0
Net Financing CF 13,328 (15,001) (3,433) (12,381) (9,997)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash (3,116) 1,567 1,101 (364) 4,775
Opg CFPS (Bt) (0.1) 0.82 0.77 0.77 0.80
Free CFPS (Bt) (0.9) 0.52 0.22 0.59 0.72
Source: Company, DBS Vickers
Target Price & Ratings History
Source: DBS Vickers
Analyst: Chaipat THANAWATTANO
THAI-CAC Certified
Corporate Governance CG Rating 2016
THAI-CAC is Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorised into:
Score Description
Declared Companies that have declared their intention to join CAC
Certified Companies certified by CAC.
Corporate Governance CG Rating is based on Thai Institute of
Directors (IOD)’s annual assessment of corporate governance practices of listed companies. The assessment covers 235 criteria in five categories including board responsibilities (35% weighting), disclosure and transparency (20%), role of stakeholders (20%), equitable treatment of shareholders (10%) and rights of shareholders (15%). The IOD then assigns numbers of logos to each company based on their scoring as follows:
Score Range Number of Logo Description
90-100 Excellent
80-89 Very Good
70-79 Good
60-69 Satisfactory
50-59 Pass
<50 No logo given N/A
S.No.Date of
Report
Closing
Price
12-mth
Target
Price
Rat ing
1: 10 Feb 16 4.30 4.30 HOLD
2: 22 Feb 16 4.28 4.30 HOLD
3: 07 Mar 16 4.88 4.30 HOLD
4: 07 Apr 16 4.98 4.30 HOLD
5: 19 Apr 16 5.25 4.30 HOLD
6: 20 Apr 16 5.20 4.30 HOLD
7: 03 May 16 5.05 4.30 HOLD
8: 09 May 16 4.84 4.30 HOLD
9: 08 Jul 16 4.88 5.20 HOLD
10: 20 Jul 16 4.90 5.20 HOLD
11: 04 Aug 16 4.94 5.20 HOLD
12: 12 Oct 16 4.76 5.20 HOLD
13: 18 Oct 16 4.82 5.20 HOLD
14: 03 Nov 16 4.84 5.30 HOLD
Note : Share price and Target price are adjusted for corporate actions. 15: 16 Nov 16 4.72 5.30 HOLD
16: 01 Dec 16 4.84 5.30 HOLD
1
2
3
4 5
6
78
9
10
1112
13
14
15
16
3.97
4.17
4.37
4.57
4.77
4.97
5.17
5.37
5.57
Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17
Bt
ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa:CS, PY
BUY Last Traded Price ( 8 Feb 2017): Bt70.25 (SET : 1,589.29)
Price Target 12-mth: Bt79.00 (12% upside) (Prev Bt70.00)
Potential Catalyst: Positive momentum for earnings in 4Q16-2017
Where we differ: We are more cautious on product spread in 2017 Analyst Chaipat THANAWATTANO +66 2657 7827 [email protected]
Price Relative
Forecasts and Valuation FY Dec (Bt m) 2015A 2016F 2017F 2018F
Revenue 403,440 346,827 390,164 405,903 EBITDA 45,339 45,853 51,136 55,635 Pre-tax Profit 22,765 24,566 29,809 34,405 Net Profit 20,503 22,371 26,604 30,732 Net Pft (Pre Ex.) 22,727 22,371 26,604 30,732 Net Pft Gth (Pre-ex) (%) 54.1 (1.6) 18.9 15.5 EPS (Bt) 4.55 4.96 5.90 6.82 EPS Pre Ex. (Bt) 5.04 4.96 5.90 6.82 EPS Gth Pre Ex (%) 54 (2) 19 16 Diluted EPS (Bt) 4.55 4.96 5.90 6.82 Net DPS (Bt) 2.80 2.80 2.80 3.10 BV Per Share (Bt) 51.4 53.5 56.6 60.5 PE (X) 15.4 14.2 11.9 10.3 PE Pre Ex. (X) 13.9 14.2 11.9 10.3 P/Cash Flow (X) 6.3 8.9 7.7 6.4 EV/EBITDA (X) 8.3 8.1 7.0 6.1 Net Div Yield (%) 4.0 4.0 4.0 4.4 P/Book Value (X) 1.4 1.3 1.2 1.2 Net Debt/Equity (X) 0.2 0.2 0.2 0.1 ROAE (%) 9.0 9.5 10.7 11.6 Earnings Rev (%): 0 0 0 Consensus EPS (Bt): 5.06 6.08 6.56 Other Broker Recs: B: 25 S: 0 H: 2
Source of all data on this page: Company, DBS Vickers, Bloomberg Finance L.P
Strong profit momentum to continue Maintain BUY with new TP of Bt79. PTTGC’s share price performed quite well in 2016, which has continued in early 2017. We believe this reflects its positive earnings momentum in 4Q16 and 2017F given the strong oil and olefins product prices. We maintain our BUY rating on the stock with its TP being raised to Bt79/sh – pegged to a higher PBV multiple amid the oil price recovery. The current share price still offers 12% upside potential and 16% total returns (including dividends).
4Q16E performance expectation. PTTGC is expected to report stronger profit in 4Q16E, which could reach Bt7.5bn or the highest quarterly number for 2016. The key drivers are better product margins and inventory gains. We expect the company to maintain a high utilisation rate for its refinery at c.100% in 4Q16. The operation at its ethylene crackers should also be maximised to reap benefits from the planned shutdowns of other producers in Thailand and strong demand.
New investments are key drivers for future growth. Its long-term earnings outlook relies heavily on its new investments, which are still in the feasibility study stage, especially for financial returns. We expect two projects – i.e. the Map Tha Put Retrofit Project that enables the company to upgrade internal naphtha feedstock to downstream, and the Propylene Oxide and Polyol plants in Thailand – to be finalised shortly. It should be able to fund these projects using its cash pile and strong cashflow. Valuation:
We apply a higher P/BV multiple to derive our new TP of Bt79
for PTTGC, Our TP is now pegged to 1.4x PBV for 2017F, vs
1.3x previously, to reflect the average trading multiple during
the last oil price recovery. PTTGC is among the cheapest
petrochemical plays in the region at 11.7x 2017F PE, compared
with the peer average of 14x PE. The higher oil price will
increase its cost competitiveness in the ethylene and derivatives
business, compared with naphtha-based olefins crackers in the
region.
Key Risks to Our View:
Weaker oil and petrochemical prices. PTTGC’s refinery business
could be impacted by more stock losses if oil prices weaken
from the current level, though we see limited downside. This
will also depress petrochemical prices and product spreads.
At A Glance Issued Capital (m shrs) 4,461
Mkt. Cap (Btm/US$m) 313,371 / 8,948
Major Shareholders (%)
PTT Pcl 48.9
Thai NVDR 8.0
State Street Bank Europe Limited 3.0
Free Float (%) 51.1
3m Avg. Daily Val (US$m) 21.1
ICB Industry : Oil & Gas / Oil & Gas Producers
DBS Group Research . Equity
9 Feb 2017
Thailand Company Guide
PTT Global Chemical Version 5 | Bloomberg: PTTGC TB | Reuters: PTTGC.BK Refer to important disclosures at the end of this report
ASIAN INSIGHTS VICKERS SECURITIES
Page 2
Company Guide
PTT Global Chemical
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Operating rate to improve from better gas flow. Smoother gas
flow from PTT should be positive for PTTGC’s operation of its
ethane-based crackers. Hence, we expect the average utilisation
rate of PTTGC’s major business segments, i.e. oil refinery,
aromatics and olefins, to gradually increase. Among these three
segments, oil refinery will run at full capacity while an increase
in utilisation will be driven by olefins and aromatic plants.
Stable market GRM expected. We assume stable market gross
refining margins (GRM) for PTTGC over 2016-18 at US$5.2-
5.5/bbl on a more balanced demand/supply outlook for regional
oil refineries in Asia. We believe the global economic recovery
could bolster the regional demand for refined oil products.
Downside risk is posed by a massive supply of middle distillates
(mainly diesel and jet fuel) as new refineries in the region shift
towards these products. In addition, higher demand for gasoline
has prompted refiners to increase their operating rates to gain
more gasoline output, which will also lead to ample supply of
middle distillates in the near term.
EBITDA margin for olefins could be steady. We think that the
olefins chain, mainly ethylene, would be the best place in the
petrochemical space due to better demand/supply balance. We
expect PTTGC’s EBITDA margin for this segment to be sustained
at 23-24% over the next three years. The next wave of new
capacity for ethylene cracker could be expected after 2017F,
when capacity additions from low cost shale gas in the US enter
the market.
Abundant PX supply should keep spreads at bay. We assume PX
condensate spread to be within the range of US$350-370/t for
the next three years to reflect abundant supply in the market.
This is driven by new capacity which needs more time to be
absorbed given the economic slowdown in China. Nonetheless,
an upside to PX spreads would be lower condensate cost, which
is normally linked to crude oil prices.
Olefin business contributes more than half of operating profit.
The olefin segment will remain in the driver’s seat in 2016F, as
product prices and spreads should remain healthy due to more
balanced demand-supply in the market. Also, we expect the gas
price adjustment in 2016 to favour PTTGC, based on the
netback formula for feedstock supplied by PTT. The recovery of
oil prices could be another boost for product price and spread in
2017F as well as potential inventory gain for its oil refining
segment. Note that its product spread for olefins segment
based on netback formula with feedstock provider, i.e. PTT, is
usually wider when oil prices are increasing.
Average utilization (%)
Market GRM (US$/bbl)
EBITDA margin - Olefins (%)
PX-condensate spread (US$/t)
Adjusted EBITDA breakdown
Source: Company, DBS Vickers
Refinery14%
Aromatics11%
Olefins & Derivatives
65%
Others10%
ASIAN INSIGHTS VICKERS SECURITIES
Page 3
Company Guide
PTT Global Chemical
Balance Sheet:
Improving financial health. Without new investments in the near
term, we expect PTTGC’s financial position to improve, which
makes room for new investment opportunities. The company is
finalising its investment plans for the next five years, which
includes a 1mtpa ethane-based cracker in the US and the
expansion of its naphtha cracker in the current location in
Rayong, under the “Map Tha Put Retrofit” (MTPR) project. The
construction of these projects is expected to start in 2018 with
commercial operations in 2020-21.
Share Price Drivers:
Higher oil and petrochemical prices. The recent increase in oil
prices could be positive for PTTGC’s earnings via higher product
prices and inventory gains. The correlation between PTTGC
share price and oil price during the past six months was 85%.
Balancing feedstock to reduce reliance on gas. One of the major
concerns on PTTGC’s outlook is depleting gas feedstock in the
Gulf of Thailand. This has prompted the group to adjust
production to reduce reliance on gas feedstock. PTTGC is trying
to increase the share of naphtha feedstock from below 10%
currently to c.30% by utilising 1.5mtpa of naphtha output from
its refinery and aromatics plants to produce 761ktpa of olefin
products under MTPR project. This will reduce the impact of
volatile oil prices and depleting gas resources in Thailand.
Key Risks:
Lower-than-expected oil and petrochemical product prices. The
impact of inventory loss on PTTGC’s earnings is less severe
than Thai Oil (TOP TB) because of lower earnings contribution
from refinery at c.20% of total EBITDA, vs. 73% from the
petrochemical business. Also, a decline in oil prices will also
lead to lower petrochemical product prices, which is the key
parameter in calculating the profit sharing with gas supplier,
PTT, based on a netback formula.
Long-term risk: Depleting gas reserves. Over 90% of PTTGC's
olefin feedstock is gas. The unplanned or planned shutdown of
gas separation plants could reduce gas supply and hurt
PTTGC's earnings. Thailand has only six years of gas reserves,
which could pose a risk to PTTGC in the long term.
Nonetheless, PTTGC has planned to leverage its expertise in
gas-based ethylene cracker in the new market, the US, to
capture the competitive feedstock cost from shale gas.
Company Background
PTT Global Chemical (PTTGC) is Thailand's largest ethane-
based petrochemical producer. The company is the core
petrochemical arm under PTT Group. PTTGC was formed after
the amalgamation of two petrochemical companies: PTT
Chemical and PTT Aromatics and Refining in 2012.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES
Page 4
Company Guide
PTT Global Chemical
Key Assumptions
FY Dec 2014A 2015A 2016F 2017F 2018F
Average utilization (%) 91.3 89.3 84.4 91.7 91.7
Market GRM (US$/bbl) 4.41 5.45 5.24 5.51 5.51
EBITDA margin - Olefins (%) 26.0 24.0 23.0 23.0 24.0 PX-condensate spread (US$/t) 400 382 350 370 370
Income Statement (Btm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Revenue 554,695 403,440 346,827 390,164 405,903
Cost of Goods Sold (526,068) (366,168) (309,896) (348,758) (359,848)
Gross Profit 28,627 37,272 36,931 41,406 46,055
Other Opng (Exp)/Inc (11,802) (11,424) (12,024) (11,605) (12,076)
Operating Profit 16,825 25,849 24,907 29,801 33,979
Other Non Opg (Exp)/Inc 1,494 2,395 2,400 2,400 2,400
Associates & JV Inc 177 711 711 711 711
Net Interest (Exp)/Inc (4,452) (3,966) (3,452) (3,103) (2,684)
Exceptional Gain/(Loss) 628 (2,224) 0.0 0.0 0.0
Pre-tax Profit 14,673 22,765 24,566 29,809 34,405
Tax (581) (1,984) (1,908) (2,910) (3,369)
Minority Interest 1,280 (278) (287) (295) (304)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 15,372 20,503 22,371 26,604 30,732
Net Profit before Except. 14,743 22,727 22,371 26,604 30,732
EBITDA 34,439 45,339 45,853 51,136 55,635
Growth
Revenue Gth (%) 0.3 (27.3) (14.0) 12.5 4.0
EBITDA Gth (%) (38.9) 31.7 1.1 11.5 8.8
Opg Profit Gth (%) (55.9) 53.6 (3.6) 19.6 14.0
Net Profit Gth (Pre-ex) (%) (56.1) 54.1 (1.6) 18.9 15.5
Margins & Ratio
Gross Margins (%) 5.2 9.2 10.6 10.6 11.3
Opg Profit Margin (%) 3.0 6.4 7.2 7.6 8.4
Net Profit Margin (%) 2.8 5.1 6.5 6.8 7.6
ROAE (%) 6.6 9.0 9.5 10.7 11.6
ROA (%) 3.8 5.4 6.0 7.1 8.0
ROCE (%) 2.8 5.4 5.4 6.7 7.7
Div Payout Ratio (%) 69.5 61.6 56.4 47.5 45.5
Net Interest Cover (x) 3.8 6.5 7.2 9.6 12.7
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES
Page 5
Company Guide
PTT Global Chemical
Quarterly / Interim Income Statement (Btm)
FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016
Revenue 94,466 96,909 81,473 66,385 90,554
Cost of Goods Sold (88,155) (88,943) (73,855) (58,062) (81,390)
Gross Profit 6,311 7,966 7,618 8,323 9,165
Other Oper. (Exp)/Inc (2,872) (3,311) (2,556) (2,645) (2,853)
Operating Profit 3,438 4,654 5,062 5,678 6,312
Other Non Opg (Exp)/Inc 201 1,635 269 283 1,405
Associates & JV Inc 485 (209) 178 53.0 168
Net Interest (Exp)/Inc (960) (936) (822) (833) (863)
Exceptional Gain/(Loss) (2,087) 399 675 102 309
Pre-tax Profit 1,077 5,542 5,362 5,283 7,331
Tax 216 (769) (623) (380) (1,022)
Minority Interest (86.1) (83.5) (31.9) 21.4 (82.9)
Net Profit 1,207 4,690 4,707 4,924 6,226
Net profit bef Except. 3,294 4,291 4,032 4,823 5,917
EBITDA 8,300 10,336 9,636 10,159 12,377
Growth
Revenue Gth (%) (15.6) 2.6 (15.9) (18.5) 36.4
EBITDA Gth (%) (47.2) 24.5 (6.8) 5.4 21.8
Opg Profit Gth (%) (69.7) 35.4 8.8 12.2 11.2
Net Profit Gth (Pre-ex) (%) (66.6) 30.3 (6.0) 19.6 22.7
Margins
Gross Margins (%) 6.7 8.2 9.4 12.5 10.1
Opg Profit Margins (%) 3.6 4.8 6.2 8.6 7.0
Net Profit Margins (%) 1.3 4.8 5.8 7.4 6.9
Balance Sheet (Btm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Net Fixed Assets 219,346 220,213 216,208 207,894 199,524
Invts in Associates & JVs 23,187 23,502 29,071 34,640 40,209
Other LT Assets 15,781 15,929 14,879 13,933 13,082
Cash & ST Invts 45,788 47,741 47,418 51,659 71,314
Inventory 31,577 29,930 22,955 25,649 26,224
Debtors 43,441 38,274 37,969 40,523 40,042
Other Current Assets 2,325 1,956 1,956 1,956 1,956
Total Assets 381,443 377,545 370,456 376,254 392,350
ST Debt
23,467 9,871 14,817 7,017 5,977
Creditor 21,679 19,650 15,424 17,011 17,500
Other Current Liab 10,972 11,700 3,921 3,921 3,921
LT Debt 89,675 95,976 85,913 83,650 82,427
Other LT Liabilities 7,200 6,083 6,083 6,083 6,083
Shareholder’s Equity 224,763 231,552 241,298 255,277 272,843
Minority Interests 3,687 2,713 3,000 3,295 3,599
Total Cap. & Liab. 381,443 377,545 370,456 376,254 392,350
Non-Cash Wkg. Capital 44,692 38,810 43,534 47,197 46,801
Net Cash/(Debt) (67,355) (58,106) (53,312) (39,008) (17,090)
Debtors Turn (avg days) 33.5 37.0 40.1 36.7 36.2
Creditors Turn (avg days) 24.1 21.6 21.9 17.9 18.5
Inventory Turn (avg days) 29.3 32.1 33.0 26.8 27.7
Asset Turnover (x) 1.4 1.1 0.9 1.0 1.1
Current Ratio (x) 2.2 2.9 3.2 4.3 5.1
Quick Ratio (x) 1.6 2.1 2.5 3.3 4.1
Net Debt/Equity (X) 0.3 0.2 0.2 0.2 0.1
Net Debt/Equity ex MI (X) 0.3 0.3 0.2 0.2 0.1
Capex to Debt (%) 15.3 16.8 12.7 9.9 10.5
Z-Score (X) 3.5 3.3 3.4 3.7 3.8
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES
Page 6
Company Guide
PTT Global Chemical
Cash Flow Statement (Btm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Pre-Tax Profit 14,673 22,765 24,566 29,809 34,405
Dep. & Amort. 15,942 16,385 17,835 18,224 18,545
Tax Paid 0.0 0.0 0.0 0.0 0.0
Assoc. & JV Inc/(loss) (177) (711) (711) (711) (711)
Chg in Wkg.Cap. 12,639 5,882 (4,725) (3,662) 396
Other Operating CF (53.3) 5,715 (1,484) (2,494) (2,963)
Net Operating CF 43,023 50,036 35,481 41,166 49,672
Capital Exp.(net) (17,304) (17,746) (12,780) (8,964) (9,324)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV (10,638) (316) (5,569) (5,569) (5,569)
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 3,805 (4,283) 0.0 0.0 0.0
Net Investing CF (24,137) (22,345) (18,349) (14,533) (14,893)
Div Paid (15,094) (11,765) (12,625) (12,625) (13,166)
Chg in Gross Debt (4,898) (7,296) (5,117) (10,063) (2,263)
Capital Issues (41.6) 0.0 0.0 0.0 0.0
Other Financing CF (3,615) (10,967) 287 295 304
Net Financing CF (23,648) (30,028) (17,455) (22,393) (15,125)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash (4,763) (2,337) (323) 4,241 19,655
Opg CFPS (Bt) 6.74 9.79 8.92 9.94 10.9
Free CFPS (Bt) 5.70 7.16 5.03 7.14 8.95
Source: Company, DBS Vickers
Target Price & Ratings History
Source: DBS Vickers
Analyst: Chaipat THANAWATTANO
THAI-CAC Certified
Corporate Governance CG Rating 2016
THAI-CAC is Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorised into:
Score Description
Declared Companies that have declared their intention to join CAC
Certified Companies certified by CAC.
Corporate Governance CG Rating is based on Thai Institute of
Directors (IOD)’s annual assessment of corporate governance practices of listed companies. The assessment covers 235 criteria in five categories including board responsibilities (35% weighting), disclosure and transparency (20%), role of stakeholders (20%), equitable treatment of shareholders (10%) and rights of shareholders (15%). The IOD then assigns numbers of logos to each company based on their scoring as follows:
Score Range Number of Logo Description
90-100 Excellent
80-89 Very Good
70-79 Good
60-69 Satisfactory
50-59 Pass
ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa:CS, PY
HOLD Last Traded Price ( 8 Feb 2017): Bt72.75 (SET : 1,589.29)
Price Target 12-mth: Bt77.00 (6% upside) (Prev Bt65.00)
Potential Catalyst: Strong performance in 4Q16
Where we differ: We are more conservative on product spread Analyst Chaipat THANAWATTANO +66 2657 7827 [email protected]
Price Relative
Forecasts and Valuation FY Dec (Bt m) 2015A 2016F 2017F 2018F
Revenue 293,569 257,488 284,623 309,329 EBITDA 25,567 28,899 28,951 30,761 Pre-tax Profit 14,102 19,124 17,624 19,594 Net Profit 12,181 16,840 14,656 16,331 Net Pft (Pre Ex.) 13,446 15,540 14,656 16,331 Net Pft Gth (Pre-ex) (%) nm 15.6 (5.7) 11.4 EPS (Bt) 5.97 8.25 7.18 8.01 EPS Pre Ex. (Bt) 6.59 7.62 7.18 8.01 EPS Gth Pre Ex (%) nm 16 (6) 11 Diluted EPS (Bt) 5.97 8.25 7.18 8.01 Net DPS (Bt) 2.70 3.80 3.30 3.70 BV Per Share (Bt) 45.3 50.6 54.1 58.7 PE (X) 12.2 8.8 10.1 9.1 PE Pre Ex. (X) 11.0 9.6 10.1 9.1 P/Cash Flow (X) 4.7 5.5 6.4 6.8 EV/EBITDA (X) 6.9 5.7 5.2 4.4 Net Div Yield (%) 3.7 5.2 4.5 5.1 P/Book Value (X) 1.6 1.4 1.3 1.2 Net Debt/Equity (X) 0.2 0.1 CASH CASH ROAE (%) 13.9 17.2 13.7 14.2 Earnings Rev (%): 0 0 0 Consensus EPS (Bt): 8.71 7.46 7.31 Other Broker Recs: B: 9 S: 6 H: 12
Source of all data on this page: Company, DBS Vickers, Bloomberg Finance L.P
TP is raised but still not attractive TP is raised to Bt77/sh. We raised our TP for TOP by 18% after assigning a higher PBV multiple amid an oil price recovery but our HOLD call is unchanged given the lack of new share price catalyst. The strong earnings performance in 4Q16E could increase investor interest in the near term but a repeat strong earnings showing in 2017F is still not in our view. We believe more capacity in the region, both oil refinery and aromatics, is likely to limit the upside. 4Q16E profit is expected to improve q-o-q but flat y-o-y. TOP is likely to report its earnings on Feb 15 which would show ongoing q-o-q improvement due to better market GRM and potential inventory gains. Nonetheless, this could be partly offset by FX losses given its USD loans and bonds of US$1.2bn. Note that the full-year performance could exceed our forecast but this should be priced in, in our view. Investment in new refinery would be concluded by end-2017. The final investment decision for its new oil refinery could be made by the end of this year and we expect the new refinery to start operation in 2021-22 at the earliest, based on a construction period of 4-5 years. Excluding this project, the company has committed capex of US$320m during 2017-18F, mainly for the efficiency improvement of its existing operation. It still has plenty of cash on hand (US$1.3bn), together with cash flow from operation of US$600-700m per annum, for new investments. Valuation:
We apply a higher P/BV multiple to derive a new TP of Bt77 for
TOP. The P/BV is raised from 1.3x to 1.4x to reflect the average
trading multiple during the last oil price recovery. Nonetheless,
this still offers limited capital gains to investors from the
current price, though the dividend yield of 4-5% for 2016-17F
is still attractive.
Key Risks to Our View: Lower-than-expected GRM is the key risk factor as new
capacity in the region will continue to put more pressure on
margins. This is due to the huge incoming new capacity in the
Middle East, China and India, especially for diesel. At A Glance Issued Capital (m shrs) 2,040
Mkt. Cap (Btm/US$m) 148,412 / 4,238
Major Shareholders (%)
PTT 49.1
Thai NVDR 5.5
State Street Bank Europe Limited 3.2
Free Float (%) 45.8
3m Avg. Daily Val (US$m) 8.2
ICB Industry : Oil & Gas / Oil & Gas Producers
DBS Group Research . Equity
9 Feb 2017
Thailand Company Guide
Thai Oil PCL Version 5 | Bloomberg: TOP TB | Reuters: TOP.BK Refer to important disclosures at the end of this report
ASIAN INSIGHTS VICKERS SECURITIES
Page 2
Company Guide
Thai Oil PCL
CRITICAL DATA POINTS TO WATCH
Earnings Drivers:
Stock gain during higher crude oil prices could be offset by rise
in operating cost. Although higher oil prices could provide a
near-term boost for TOP’s earnings due to stock gains, this
could be offset by higher operating cost from fuel used and loss
in the process, which is usually at 3% of total crude intake. In
addition, the wider spread between light and heavy crude oil
price could also increase TOP’s crude premium.
GIM to normalise in 2016-18F. We expect its GIM to soften to
more sustainable levels of US$7.7-8.4/bbl in 2016-18F after a
strong increase in 2015 to US$9.1/bbl. This would be driven by
the favourable GRM of the oil refining segment as a result of
high demand for gasoline. This is on the account of low crack
spread for middle distillate products (diesel and jet fuel) given
the weaker demand and more supply in the region.
PX spread should remain under pressure. Our PX spread for
2016-18F appeared to be conservative at US$250/t, compared
with US$320/t for 9M16. This reflected lower-than-expected
new supply in the region due to delayed start-up of new plants
in Asia. Additional supply from new aromatics plants in Asia
would continue to enter the market from 4Q16-2017 which
could increase pressure on the PX spread. Meanwhile, demand
could soften due to China's slowing economy. Cost-saving
programmes helped the operating performance of the
aromatics business to improve strongly in 2015-16 but the
upside to this should be limited, in our view.
High utilisation rate reflects well-maintained plants. TOP was
able to fully utilise its refinery in the past few years even during
the planned turnaround in 2014 when it could operate at 98%.
This was due to its well-maintained refinery and aromatics
plant. We expect utilisation to remain at 100% in the medium
term for the oil refinery. Nonetheless, the utilisation rate of
aromatics plants should be stable at 81% in order to optimise
the integrated margin as the PX spread would remain under
pressure due to abundant supply in the region.
New investment for refinery is under study. TOP is conducting a
feasibility study on a new 200-kbd refinery in Thailand to
replace its 50-year-old facilities at Sri Racha. The investment
would also increase total capacity from 275kbd to 400kbd with
higher energy efficiency and zero fuel oil products. The total
investment should be cheaper than for a greenfield project
because it would be able to share several facilities with the
current plant. If the project is given the green light, the plant
will go onstream in 2021-22 at the earliest. We believe the
project has been revived, as TOP does not have any investments
in the pipeline currently, and the company is in a stronger
financial position and has more headroom for debt.
Dubai crude oil (US$/bbl)
Avg. market GIM (US$/bbl)
PX spread vs. ULG95 (US$/t)
Utilization rate - refinery (%)
Utilization rate - petchem (%)
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES
Page 3
Company Guide
Thai Oil PCL
Balance Sheet:
Stronger financial position than during the previous crisis. TOP’s
balance sheet is much stronger now than during the last global
financial crisis in 2008-09. Its net debt/equity fell from 0.5x in
2009 to 0.2x in 2015. We estimate the ratio to decline further
and to be in net cash in 2017 despite the planned capex.
However, the gross gearing ratio should decline more slowly as
the company has pre-funded its investment plan and debt
repayment with US$1bn debentures issued in 2013 with
coupon rates of 3.625-4.875% for 10 and 30 years. This would
be the key factor for its potential FX losses in 2017-18F as the
Thai baht could weaken against USD if a US interest rate hike
takes place.
Share Price Drivers:
Recovery of GRM from economic recovery and higher demand.
We expect gross refining margin (GRM) to recover in 2017 on
stronger demand, especially for middle distillates which reflects
better global economic outlook. Also, we expect the crack
spread of gasoline to improve on better balance of demand and
supply. The strong crack spread of this product was the main
factor behind the favourable market GRM in 2015-early 2016
but the magnitude of increase for this year could be eroded by
additional supply as regional refiners have maximised their
gasoline output to accommodate strong demand in the market.
Nonetheless, this should be limited given the configuration of
each refinery.
Higher oil price could boost near-term earnings from stock
gains. We estimate TOP could book stock gains in 4Q16E from
higher crude oil prices. We estimate that for every US$10/bbl
increase of crude oil price from end-3Q16, TOP could post an
inventory gain of US$29m (c.Bt1bn). This could be the upside
surprise for our earnings forecast.
Key Risks:
Lower-than-expected GRM is the key risk factor as new
capacity in the region will continue to put more pressure on
margins. This is due to the huge incoming new capacity in the
Middle East, China and India, especially for diesel. Additional
capacity of 1mbpd in 2016 and 2.5mbpd in 2017 are expected
to come onstream, compared with demand growth of
c.1mbpd each year. This would be partly offset by some
refinery closures during the period.
Company Background
Thai Oil is Thailand's largest and most complex refinery, and
the flagship refinery under PTT group. The refinery is
integrated with petrochemicals and lube base plants. TOP also
invests in other related businesses, including marine
transportation for petroleum products, ethanol and power
plants.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
EBITDA breakdown (9M16)
PB Band (x)
Source: Company, DBS Vickers
Refinery67%
Aromatics16%
Lube Base Oil8%
Power Generation
5%Others
4%
ASIAN INSIGHTS VICKERS SECURITIES
Page 4
Company Guide
Thai Oil PCL
Key Assumptions
FY Dec 2014A 2015A 2016F 2017F 2018F
Dubai crude oil (US$/bbl) 96.6 50.9 42.0 52.0 57.0
Avg. market GIM (US$/bbl)
6.20 9.10 7.71 7.81 8.43 PX spread vs. ULG95 (US$/t)
279 250 250 250 250
Utilization rate - refinery (%)
98.0 108 105 105 105
Utilization rate - petchem (%)
82.0 81.0 81.0 81.0 81.0
Income Statement (Btm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Revenue 390,090 293,569 257,488 284,623 309,329
Cost of Goods Sold (394,170) (273,819) (235,641) (262,641) (285,318)
Gross Profit (4,080) 19,750 21,848 21,982 24,012
Other Opng (Exp)/Inc (2,641) (3,207) (2,397) (2,936) (3,206)
Operating Profit (6,722) 16,543 19,451 19,045 20,805
Other Non Opg (Exp)/Inc 2,085 1,546 1,314 1,546 1,546
Associates & JV Inc 630 712 962 962 962
Net Interest (Exp)/Inc (3,966) (3,435) (3,903) (3,930) (3,720)
Exceptional Gain/(Loss) 3,214 (1,264) 1,300 0.0 0.0
Pre-tax Profit (4,759) 14,102 19,124 17,624 19,594
Tax 920 (1,597) (1,816) (2,499) (2,795)
Minority Interest (301) (323) (468) (468) (468)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit (4,140) 12,181 16,840 14,656 16,331
Net Profit before Except. (7,354) 13,446 15,540 14,656 16,331
EBITDA 2,526 25,567 28,899 28,951 30,761
Growth
Revenue Gth (%) (5.9) (24.7) (12.3) 10.5 8.7
EBITDA Gth (%) (89.1) 912.3 13.0 0.2 6.3
Opg Profit Gth (%) nm nm 17.6 (2.1) 9.2
Net Profit Gth (Pre-ex) (%) nm nm 15.6 (5.7) 11.4
Margins & Ratio
Gross Margins (%) (1.0) 6.7 8.5 7.7 7.8
Opg Profit Margin (%) (1.7) 5.6 7.6 6.7 6.7
Net Profit Margin (%) (1.1) 4.1 6.5 5.1 5.3
ROAE (%) (4.7) 13.9 17.2 13.7 14.2
ROA (%) (2.1) 6.3 8.5 7.0 7.6
ROCE (%) (7.1) 6.0 6.4 5.7 6.5
Div Payout Ratio (%) N/A 45.2 46.0 45.9 46.2
Net Interest Cover (x) (1.7) 4.8 5.0 4.8 5.6
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES
Page 5
Company Guide
Thai Oil PCL
Quarterly / Interim Income Statement (Btm)
FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016
Revenue 74,721 68,446 56,790 72,368 68,476
Cost of Goods Sold (73,729) (64,074) (51,566) (63,007) (64,725)
Gross Profit 993 4,372 5,224 9,361 3,751
Other Oper. (Exp)/Inc (668) (1,060) (509) (667) (629)
Operating Profit 325 3,312 4,715 8,694 3,122
Other Non Opg (Exp)/Inc 478 238 265 547 288
Associates & JV Inc 167 118 305 198 243
Net Interest (Exp)/Inc (858) (659) (805) (866) (879)
Exceptional Gain/(Loss) (2,021) 1,371 715 (36.4) 725
Pre-tax Profit (1,908) 4,381 5,195 8,537 3,497
Tax (317) (566) (363) (688) (451)
Minority Interest (68.9) (65.9) (106) (96.8) (105)
Net Profit (2,294) 3,749 4,726 7,753 2,941
Net profit bef Except. (273) 2,378 4,011 7,789 2,216
EBITDA 2,750 5,470 7,127 11,347 5,649
Growth
Revenue Gth (%) (5.5) (8.4) (17.0) 27.4 (5.4)
EBITDA Gth (%) (74.2) 98.9 30.3 59.2 (50.2)
Opg Profit Gth (%) (96.2) 920.4 42.4 84.4 (64.1)
Net Profit Gth (Pre-ex) (%) nm nm 68.7 94.2 (71.5)
Margins
Gross Margins (%) 1.3 6.4 9.2 12.9 5.5
Opg Profit Margins (%) 0.4 4.8 8.3 12.0 4.6
Net Profit Margins (%) (3.1) 5.5 8.3 10.7 4.3
Balance Sheet (Btm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Net Fixed Assets 79,120 83,258 84,841 78,975 73,059
Invts in Associates & JVs 13,114 13,441 14,115 14,788 15,462
Other LT Assets 5,910 4,977 5,937 5,626 5,311
Cash & ST Invts 46,483 53,129 64,001 74,778 84,688
Inventory 28,533 18,883 23,758 23,192 25,560
Debtors 16,141 14,177 10,582 11,697 12,712
Other Current Assets 4,307 4,302 3,102 3,135 3,338
Total Assets 193,607 192,166 206,335 212,190 220,131
ST Debt
1,247 1,787 4,113 4,113 5,113
Creditor 17,811 12,053 15,649 17,482 19,032
Other Current Liab 16,577 4,352 3,952 4,319 4,829
LT Debt 67,265 73,719 70,019 66,319 61,619
Other LT Liabilities 2,863 3,246 4,201 3,979 3,697
Shareholder’s Equity 83,396 92,371 103,295 110,403 119,798
Minority Interests 4,448 4,637 5,105 5,574 6,042
Total Cap. & Liab. 193,607 192,166 206,335 212,190 220,131
Non-Cash Wkg. Capital 14,593 20,956 17,841 16,222 17,749
Net Cash/(Debt) (22,029) (22,377) (10,131) 4,345 17,956
Debtors Turn (avg days) 21.0 18.8 17.5 14.3 14.4
Creditors Turn (avg days) 23.2 20.4 22.1 23.7 24.0
Inventory Turn (avg days) 36.3 32.4 34.1 33.6 32.0
Asset Turnover (x) 1.9 1.5 1.3 1.4 1.4
Current Ratio (x) 2.7 5.0 4.3 4.4 4.4
Quick Ratio (x) 1.8 3.7 3.1 3.3 3.4
Net Debt/Equity (X) 0.3 0.2 0.1 CASH CASH
Net Debt/Equity ex MI (X) 0.3 0.2 0.1 CASH CASH
Capex to Debt (%) 27.3 14.4 11.3 1.4 1.5
Z-Score (X) 3.6 3.7 3.5 3.6 3.8
Source: Company, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES
Page 6
Company Guide
Thai Oil PCL
Cash Flow Statement (Btm)
FY Dec 2014A 2015A 2016F 2017F 2018F
Pre-Tax Profit (4,759) 14,102 19,124 17,624 19,594
Dep. & Amort. 6,533 6,766 7,172 7,398 7,448
Tax Paid 920 (1,597) (1,816) (2,499) (2,795)
Assoc. & JV Inc/(loss) (630) (712) (962) (962) (962)
Chg in Wkg.Cap. 1,106 999 421 483 644
Other Operating CF 21,185 12,181 2,826 1,187 (2,177)
Net Operating CF 24,356 31,738 26,765 23,230 21,752
Capital Exp.(net) (18,679) (10,867) (8,398) (1,000) (1,000)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV (1,392) (327) (674) (674) (674)
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF (275) 13,724 0.0 0.0 0.0
Net Investing CF (20,346) 2,530 (9,072) (1,674) (1,674)
Div Paid (4,242) (3,194) (5,916) (7,548) (6,936)
Chg in Gross Debt 5,979 6,994 (1,374) (3,700) (3,700)
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF (4,811) (18,540) 468 468 468
Net Financing CF (3,075) (14,740) (6,822) (10,780) (10,168)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash 934 19,527 10,872 10,777 9,910
Opg CFPS (Bt) 11.4 15.1 12.9 11.2 10.3
Free CFPS (Bt) 2.78 10.2 9.00 10.9 10.2
Source: Company, DBS Vickers
Target Price & Ratings History
Source: DBS Vickers
Analyst: Chaipat THANAWATTANO
THAI-CAC Certified
Corporate Governance CG Rating 2016
THAI-CAC is Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorised into:
Score Description
Declared Companies that have declared their intention to join CAC
Certified Companies certified by CAC.
Corporate Governance CG Rating is based on Thai Institute of Directors (IOD)’s annual assessment of corporate governance practices of listed companies. The assessment covers 235 criteria in five categories including board responsibilities (35% weighting), disclosure and transparency (20%), role of stakeholders (20%), equitable treatment of shareholders (10%) and rights of shareholders (15%). The IOD then assigns numbers of logos to each company based on their scoring as follows:
Score Range Number of Logo Description
90-100 Excellent
80-89 Very Good
70-79 Good
60-69 Satisfactory
50-59 Pass
<50 No logo given N/A
Industry Focus
Page 7
DBS Vickers recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 9 Feb 2017 06:12:15 (THA) Dissemination Date: 9 Feb 2017 06:49:26 (THA)
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Vickers Securities (Thailand) Co, Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers
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copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Vickers Securities
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The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to
change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard
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addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal
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document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or
persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
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Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it
may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no
obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
Industry Focus
Page 8
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research
department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction
in the past twelve months and does not engage in market-making.
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
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interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s)
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as of 8 Feb 2017.
Compensation for investment banking services:
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manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
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investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
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Industry Focus
Page 9
Wong Ming Tek, Executive Director, ADBSR
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