FocusThai PTT eyes better Q1 earnings on high oil prices - analysts

27 February 2013 05:07  [Source: ICIS news]

By Nurluqman Suratman

PTT facility SINGAPORE (ICIS)--Thailand’s PTT Group will likely see earnings improve in the first quarter of 2013 on the back of high oil prices, but its full-year results may be hit by narrower refining margins because of continued weakness in demand, analysts said on Wednesday.

The state-owned integrated oil, gas and petrochemicals firm late last week reported a Thai baht (Bt) 22.7bn ($762m) net profit in the three months to December 2012, representing a 29% year-on-year jump, but a 37% decline from the previous quarter. In the first three months of 2012, PTT’s net profit stood at Bt37.4bn.

For the whole of 2012, PTT’s net profit slipped by 1.5% to Bt104.7bn, while sales and service revenues fell by 15% at Bt2,794bn.

“Solid operations” from upstream subsidiary PTT Exploration and Production (PTTEP) should help the Thai energy giant post better earnings in January-March 2013, said Naphat Chantaraserekul, a Bangkok-based analyst at DBS Vickers Securities.

“The recent rise in oil prices, and improving gross refining margins and petrochemical prices as well as spreads should also support first quarter earnings,” Chantaraserekul said.

At midday, US crude for April delivery was trading at $92.64/bbl, while Brent crude was at $112.73/bbl.

PTTEP was the largest contributor to PTT’s 2012 earnings because of higher crude oil prices, according to ratings firm Moody’s.

The PTT group imports crude from the Gulf and uses Dubai crude oil as a price benchmark. In 2012, Dubai crude prices increased by an average of 2.7% to $109.1/bbl.

PTTEP generated 67% of PTT's total consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) of Bt227.8bn in 2012. PTT’s subsidiary recorded an EBITDA margin of 70% last year, up from 69% in 2011.

Full-year 2013 earnings for PTT, however, may come under pressure from depressed refining margins, as global capacity is increasing amid a slowdown in demand, said Simon Wong, vice president and senior analyst at Moody’s.

“Looking forward, we expect PTTEP to remain the key growth engine in the PTT group," Wong said.

Moody’s has a stable outlook on PTT's credit ratings as the energy company enjoys strong support from the Thai government and has a relatively stable cash flow from its natural monopoly of gas transmission and distribution businesses in Thailand.

“Moody's notes that Vichet Kasemthongsri, a former deputy transport minister, has been appointed as the new chairman of PTT in February 2013. We will closely monitor the impact of what appears to be greater government involvement in PTT group and the possible implication for its strategic direction, operational and financial policies going forward,” the US ratings firm said.

On the petrochemicals front, PTT expects olefins prices this year to increase, on the back of higher demand for petrochemicals coming from China and the “focus on infrastructure and logistics” projects in Asia as a whole, the company said in a management report released on 22 February.

PTT expects high density polyethylene (HDPE) and polypropylene prices to average $1,445/tonne (€1,113/tonne) and $1,483/tonne, respectively, in 2013, while it projects benzene and paraxylene (PX) values to average  $1,292/tonne and $1,637/tonne.

In 2012, earnings contributions from the company’s natural gas and petrochemical operations weakened, although olefins sales volumes rose in line with higher production on increased availability of gas feedstock from PTT's gas separation plant.

($1 = Bt29.8 / $1 = €0.77)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Nurluqman Suratman

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