FocusPTT Global Chemical better equipped to weather global slowdown

20 October 2011 07:57  [Source: ICIS news]

PTT facility By Nurluqman Suratman

SINGAPORE (ICIS)--PTT Global Chemical, the new flagship petrochemical company of Thailand’s oil and gas giant PTT, can weather a second round of global recession better given its size and armed with a competitive mixed-feedstock production structure, analysts said on Thursday.

The company, created from the merger PTT Chemical (PTTCH) and PTT Aromatics (PTTAR), will start trading on the Stock Exchange of Thailand (SET) on 21 October, marking the full integration of two PTT affiliates.

With an estimated market capitalisation of more than baht (Bt) 300bn ($10bn), PTT Global Chemical will be the eighth largest listed company on the Thai bourse, analysts said.

It will also become the only company in the world to integrate its olefins and aromatics chemical chains with gas-based and liquid-based feedstock sources, said Pongtham Danwungderm, a Bangkok-based analyst at KGI Securities.

“This uniqueness will be the foundation for value creation of [the company’s] future investment and should give it a competitive advantage over its competitors,” Danwungderm said.

PTTCH and PTTAR, which were individually listed in the Thai bourse, suspended trading of shares on 11 October to pave the way for the listing of PTT Global Chemical.

The merged company can expand its mix towards more high-value petrochemicals and become less dependent on commodity products such petroleum products, ethylene, propylene, mixed C4 and aromatics, Danwungderm said.

The high-value products include ethylbenzene (EB), styrene monomer (SM), acrylonitrile butadiene styrene (ABS), styrene butadiene rubber (SBR), polypropylene (PP) and polycarbonate (PC), he said.

The company could also venture into producing epoxy resins, methyl methacrylate (MMA), polymethyl methacrylate (PMMA), caprolactam (capro), nylon (polyamide), purified terephthalic acid (PTA), polyethylene terephthalate (PET), polyester fibre as well as PET resin, Danwungderm added.

These products cover a wide range of applications in automotive, electronics, packaging, construction, paints, and textile industries.

PTT Global Chemical can count on its low-cost structure, economies of scale and product variety to cushion its earnings from the global economic slowdown, the KGI Securities analyst said.

The company’s competitiveness lies in the use of gas, a cheaper feedstock compared to naphtha, in petrochemical production. Within southeast Asia, only PETRONAS Chemicals of Malaysia has the same production advantage.

“Our base case scenario is that the global economy would continue to slow in 2012, implying potential downsides to refinery and petrochemical spreads,” said Danwungderm, but added that the consequent weak demand should last no more than two years.

PTT Global Chemical’s profitability will likely be better than most global players during the period of slowdown, Danwungderm said.

“Under the worst case, [the company’s] margins should not fall as much as it did in 2008, thanks to less supply additions [worldwide] in 2012-15,” Danwungderm said.

Naphat Chantaraserekul an analyst with DBS Vickers Securities in Bangkok, said: “There may be near-term volatility from the [global] economic downturn, but PTTCH’s fundamentals are intact because of the flexibility it has to optimise output through fully integrated operations with PTTAR.”

“The synergy will bring about some immediate cost savings,” said Chantaraserekul.

Danwungderm of KGI Securities said that this synergy translates to an annual savings of $80m-154m (€58-112m) for the merged company.

PTTCH and PTTAR generated a combined revenue of Bt375bn ($12.2bn) in 2010. PTT Global Chemical targets to beef up its revenue to around Bt600bn in 2015, Danwungderm said.

($1 = Bt30.79, $1 = €0.73)

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By: Nurluqman Suratman

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