Rayong project delays to shave Thai PTT profits in 2010

16 November 2009 06:06  [Source: ICIS news]

By Pearl Bantillo

SINGAPORE (ICIS news)--Legal environmental issues hounding the 25 projects of Thai oil major PTT Plc in Mab Ta Phut could shave the company's projected baht (Bht) 70bn ($2.1bn) net profit by as much as 10% next year, analysts said on Monday.

PTT’s plan to consolidate its four petrochemical subsidiaries was also taken hostage when the Thai Central Administration Court ordered a halt to the construction of a total of 76 projects in Rayong province, where Mab Ta Phut is located, on environmental grounds, analysts said.

“They are still facing the negative news on the Mab Ta Phut [projects], which so far has shown really slow progress. It is an overhanging issue,” said Naphat Chantaraserekul, a Bangkok-based analyst at brokerage house Kim Eng Securities.

The Thai government had set up a committee to amend the country’s environmental regulations that would address the Mab Ta Phut problem but the process could take months to complete, analysts said.

Based on projections by brokerage house KGI Securities and Kim Eng Securities, PTT would post a full-year net profit of about Bht70bn in 2010 from Bht60bn this year.

In January to September 2009, PTT’s net profit fell a steep 40% to Bht44.33bn, weighed down by severe weakness in demand. Its third-quarter net profit was down 5% year-on-year at Bht16.99bn.

PTT would need a speedy resolution to the deadlock on the Mab Ta Phut projects to get a clearer view on how its financial picture would look like next year, Kim Eng's Chantaraserekul said.

“The most exposed to downside is PTT Chemical as its six projects under construction will come on stream in the first quarter of 2010,” he said.

PTT Chemical, the group’s main petrochemical arm, is at risk of as much as 40% decline in projected profits of between Bht9-10bn in 2010 as the six projects were included in the list of those under court injunction issued in late September, analysts said.

While construction essentially went on unhampered despite the court injunction, the plants may not be allowed to operate upon completion, analysts said.

The projects include the expansion of two high-density polyethylene units that would have a combined capacity of 300,000 tonnes/year, a low-density polyethylene plant and a linear low-density polyethyelene plant with combined capacity of 700,000 tonnes/year, said Sutthichai Kuworachai, a Bangkok-based analyst at brokerage KGI Securities.

PTT Chemical, where PTT has a 49% stake, reported a 43% year-on-year decline in third-quarter net profit to Bht2.89bn as margins came under severe pressure even as sales were roughly the same as last year’s at Bht23.46bn.

With more olefin capacity coming on stream in China and Middle East, Kim Eng expects PTT Chemical’s performance to be strained by weakening spreads on petrochemicals, Chantaraserekul said.

The group’s aromatics operations, represented by PTT Aromatics (PTTAR) looks to hold more promise next year, he said.

“We are less negative on aromatics because there is limited supply and I think demand in China may not fall as much as it used to,” Chantaraserekul said.

PTTAR swung to Bht1.71bn net profit in the third quarter despite a 16.9% decline in sales to Bht64.26bn due as overall costs fell by a quarter compared to the same period last year.

PTTAR is also a 49%-owned affiliate of PTT.

Another PTT unit with petrochemical operations – Integrated Refining and Petrochemical Corp (IRPC) managed to reverse its losses to post a Bht2.3bn net profit in the September quarter despite weaker sales.

PTT has a 36% stake in IRPC and holds a 49% stake in Thai Oil, another petrochemical affiliate.

The group was supposed to firm up details of the planned consolidation of its four petrochemicals affiliates last month but had to push back the schedule after court injunction on numerous Rayong projects, said KGI's Kumworachai.

“With the expansion projects put on hold by the court order, this will definitely impact the valuation of the [four] companies. According to the company, the merger plan will be put on hold until the court case is clear,” said Kim Eng's Chantaraserekul.

The Thai Bankers Association had recently issued an open letter to Thailand’s Prime Minister Abhisit Vejajiva for the speedy resolution of the issue that puts on hold roughly Bht400bn in investments.

“All the chemical companies insisted they have done the environmental study,” said the association secretary general Twatchai Yongkittikul. “For industries that are very strict with environmental [damage] control, they should not be penalized,” he said.

($1 = Bht33.25)

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By: Pearl Bantillo
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