Target price : Bt235
Recommendation : BUY
Closing Price (6 May 09) : Bt212
1Q09 profit to be 46.6% lower than in the same period of last year
- We expect PTT to deliver net profit of Bt13,176m in 1Q09, decreasing 46.6% from the same year-ago quarter but reversing a massive loss of Bt22,189m in the prior quarter.
- Sequential, quarter-on-quarter earnings improvement is expected in 2Q09.
- We lift our 2009 price target to Bt235/share to reflect an increase in target P/E to 12x from 7x.
- We raise our recommendation for PTT to 'Trading BUY' from 'SELL.'
1Q09 net profit expected to be about Bt13,176m, decreasing 46.6% from the same year-ago quarter but reversing a massive loss of Bt22,189m in the prior quarter
We expect PTT, Thailand's top energy firm to swing to a net profit of Bt13,176m, or Bt4.68 a share in 1Q09 from a massive loss of up to Bt22,189m in the prior quarter. On a YoY basis, the profit is however forecast to fall as much as 46.6%. Strong earnings improvement on a QoQ basis would reflect a recovery of its refining units due to the absence of oil inventory losses. The sharp profit decline of 46.6% YoY would however be attributed to: (i) weakness in core gas business due to: (a) an expected fall of 2% YoY in gas sales volume to 3,280 MMCFD as a result of a 23.8% drop in demand from IPP power producers to 740 MMCFD and a 6% decline from SPP power producers to 440 MMCFD, (b) margin contraction in the industrial segment given that gas prices tied to bunker oil prices are falling but costs of gas has risen at a slower pace than oil prices, and (c) an estimated loss of Bt1,624m from sale of NGV at Bt8.5/kg below cost of Bt14/kg; (ii) an expected drop of 63.1% YoY in profit contribution from affiliates to Bt2,855m; and (iii) a profit drop of 35.5% YoY and 15.4% QoQ to Bt5,746m in 1Q09 at PTTEP.
Sequential, quarter-on-quarter earnings improvement expected in 2Q09
Earnings are expected to be fall YoY but improve QoQ in 2Q09. Positive earnings drivers for the second quarter include: (i) tentative signs of a recovery in gas demand in Apr 2009 with gas sales volume up 1% YoY to 3,590 MMCFD; (ii) new gas pipeline tariff effective Apr 1, 2009 with gas pipeline tariff raised by Bt2.02 per million BTU to Bt19.74 from Bt21.76; and (iii) a likely margin improvement for gas sales and gas separation plant thanks to falling costs of gas and higher product prices with HDPE up 17.6% QoQ to USE1,066/ton and PP up 19.4% to US$1,040/ton.
Upgrade to BUY with 2009 price target raised to Bt235/share based on a P/E of 12x
In our view, earnings have already hit bottom. The US economy is also showing tentative signs of recovery after the latest Reuters/University of Michigan Surveys of Consumers showed its final index of confidence climbed to 65.1 in April 2009, the highest since Sep 2008. This indicator suggests that oil demand would likely pick up. We believe expectations of sequential, quarter-on-quarter earnings improvement in 2Q09 should be a positive catalyst for the share price in the near term. At the end of the day, we raise our recommendation for PTT to 'Trading BUY' from 'SELL' and we lift our 2009 price target to Bt235/share to reflect an increase in target P/E to 12x from 7x, still below the SET's average of 13.49 and the energy sector's average of 16x.
By Phillip Securities (Thailand) Plc. on May 7, 2009
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