PTT Exploration and Production
PTT Exploration and Production Underperform (15E TP Bt142.00)
Company Update
Close Bt118.00
Energy
Earnings upgrade/Earnings downgrade/Overview unchanged
December 24, 2014
The risk is on the downside
FY14
FY15
Consensus EPS (Bt)
14.747
13.492
KT ZMICO vs. consensus Share data
14.14%
11.72%
Reuters / Bloomberg
PTTEP.BK/PTTEP TB 3,969.99
Paid‐up Shares (m)
1.00
Par (Bt) Market cap (Bt bn / US$ m) Foreign limit / actual (%) 52 week High / Low (Bt) Avg. daily T/O (shares 000)
468.00/14,239.00 40.00/20.73 172.50/99.75 5,697.00 4.43
NVDR (%) Estimated free float (%)
34.68
Beta
1.25
URL
www.pttep.com
CGR 2013
Patcharin Karsemarnuntana Analyst, no 17834 [email protected] 66 (0) 2695‐5837
Lack of positive catalysts Given the unfavorable oil price environment entering the bear market (with an expected sustained low oil price towards 1H15E), PTTEP’s earnings estimates and TP are at risk for possible downside should the Dubai price fall below our assumption (US$70 in 2015E and US$75 in 2016E). Given the lack of positive catalysts, we maintain our “Underperform” rating for PTTEP, with our sensitivity study suggesting a low‐case TP of Bt121 given a flat US$60s oil price and Bt92 given a flat US$40s oil price level. Introducing 5‐year expenditures plan with negligible change in CAPEX PTTEP disclosed its five‐year expenditures (CAPEX and OPEX) totaling US$24.3bn for 2015‐19E, (‐4% from earlier for 2014‐18E), with the main focus on its producing assets (65% of expenditures). Given that new projects, including Mozambique Offshore Area 1, M3, and Mariana Oil Sands, have been delayed with the FID to be made in late 2015‐17E, there is room for investment flexibility in terms of postponing expenditures if the projects are determined to be uneconomic. Sales volume projection of flat growth during 2015‐19E The company also announced a five‐year sales volume target at 0.7% CAGR for 2015‐19E, with solid growth expected in 2014E‐2015E before likely seeing a slight decline in 2017‐18; meanwhile, the sales volume projection with 4% YoY growth in 2019E factors in the new volume contribution from the Ubon field (part of the Contract 4 project) and the Myanmar M3 project. 2014‐16E earnings and 2015E TP maintained Given the negligible change in CAPEX and our projected sales volume in 2014‐19E either being in line or 2‐4% less conservative than the company’s guidance, we maintain our 2014‐16E NP forecasts calling for ‐5% CAGR, largely due to the effect of the low oil price environment on its 30% liquid‐linked sales volume. We also maintain our 2015E DCF‐ based TP of Bt142/share. Financial and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
2012 212,537 57,316 17.08 26.7% 5.80 82.65 2012 6.91 3.43 1.43 4.9% 21.7% 13.8%
2013 224,973 56,155 14.07 ‐17.6% 5.66 96.86 2013 8.39 3.30 1.22 4.8% 15.8% 14.2%
2014E 251,088 56,128 14.14 0.5% 5.37 113.76 2014E 8.35 2.99 1.04 4.6% 13.4% 11.7%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 8
2015E 232,223 46,530 11.72 ‐17.1% 4.45 121.03 2015E 10.07 3.28 0.98 3.8% 10.0% 11.8%
2016E 232,677 50,467 12.71 8.5% 4.83 128.91 2016E 9.28 3.21 0.92 4.1% 10.2% 9.2%
Introducing 5‐year expenditures plan (2015‐19E) with negligible change in CAPEX PTTEP disclosed its five‐year expenditures (CAPEX and OPEX) totaling US$24.3bn for 2015‐19E, (‐4% from earlier guidance for 2014‐18E when its oil sands’ asset swap was done in late Feb‐ 2014). The expenditures break down into 1) CAPEX of US$15.9bn, ‐3% from earlier given the delay of CAPEX for the Mozambique Offshore Area 1 project and the Mariana Oil Sands project (in line with the shift of their Final Investment Decision (FID) to late 2015E‐early 2016E, and to 2016E‐2017E, respectively), which will more than offset the larger CAPEX for the acquired assets from Hess and the new oil field called “Ubon” (part of the Contract 4 project), and 2) OPEX of US$8.4bn (‐5% from earlier, largely due to cost optimization). The expenditures average at US$3bn a year for CAPEX and US$1.7bn a year for OPEX, with the main focus (65% of expenditures) on its producing assets (mainly the Bongkot project, the Arthit project, the S1 project, the Contract 4 project, the MTJDA project, and the Zawtika project) in order to maintain their production plateaus, and 30% on its developing assets (including the Ubon field, the Myanmar M3 project and the Mariana Oil Sands project); meanwhile, the remaining 5% is for exploration assets. Given the unfavorable oil price environment, the company’s new projects have been delayed with the FID to be made in late 2015‐17E, including the Mozambique Offshore Area 1 project (late 2015E‐early 2016E), the Ubon project (late 2015E), the Myanmar M3 project (2016E), and the Mariana Oil Sands project (2016E‐2017E). There is still room for investment flexibility in terms of postponing expenditures if the projects are determined to be uneconomic. Thus, the company’s expenditures in 2018‐19E are subject to change depending on whether new projects with back‐end loaded CAPEX are sanctioned Figure 1: PTTEP’s revision on its five‐year investment expenditures New forecasts unit : US$mn Capital Expenditures Operating Expenditures Acquisition (M&A) Total Expenditures
2014E
2015E
2016E
2017E
2018E
2019E
Total 2015-19E
2,936 1,587 1,199 5,722
3,071 1,761
3,437 1,767
3,833 1,660
3,110 1,648
2,411 1,597
4,832
5,204
5,493
4,758
4,008
15,862 8,433 24,295
Previous forecasts unit : US$mn Capital Expenditures Operating Expenditures Acquisition (M&A) Total Expenditures
2014E
2015E
2016E
2017E
2018E
2019E
Total 2014-18E
3,388 2,010
3,562 1,679
3,074 1,671
3,514 1,742
2,866 1,775
na na
16,404 8,877
5,398
5,241
4,745
5,256
4,641
na
25,281
-13% -21%
-14% 5%
12% 6%
9% -5%
9% -7%
na na
-3% -5%
6%
-8%
10%
5%
3%
na
-4%
% revision from previous Capital Expenditures Operating Expenditures Acquisition (M&A) Total Expenditures
Source: Company data, KT ZMICO Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 8
CAPEX focuses mainly on areas of high expertise in Thailand and SEA The company’s CAPEX spending is mainly focused on petroleum assets in Thailand and elsewhere in South East Asia (with Myanmar as the key area), accounting for approximately 60% and 20%, respectively.
Figure 2: PTTEP’s CAPEX by region
A) 2015E CAPEX breakdown
Source: The Company, KT ZMICO Research
B) 2015‐19E CAPEX breakdown
Source: The Company, KT ZMICO Research
Sales volume projection of flat growth during 2015‐19E The company also announced a five‐year sales volume target at 0.7% CAGR for 2015‐19E. Despite its guidance of a negligible sales volume cut of 1% in 2015E, an upward revision by 2‐ 6% was made to 2016‐18E from its earlier informal guidance. Meanwhile, the initial sales volume target disclosed by the company for 2019E is 334kboe/d. Based on the company’s guidance on sales volume over the next five years, there will be solid growth in 2014E at 322kboe/d (+10% YoY) and in 2015E at 343kboe/d (+7% YoY), largely due to 1) the full‐year volume contribution from the Zawtika project (start‐up in Aug‐2014, with full DCQ of 300mmscfd); 2) the full‐year volume contribution from the acquired Hess assets (15% of the Contract 4 project and 30% of the Sinphuhorm project in Apr‐2014); and 3) the first oil production at the Algeria 433a&416b project (with projected crude oil production capacity of 20kbd in 2Q15E). The drop in sales volume during 2017‐18E reflects the natural decline of its oil fields i.e., Montara and Vietnam 16‐1. Meanwhile, the initial sales volume target disclosed by the company for 2019E (at 334kboe/d) reflects new project kickoffs, including the 60%‐owned Ubon field in 1H19E (with crude oil production capacity of 30kbd and gas production capacity of 100mmscfd) and the 80%‐owned Myanmar M3 project in 2H19 (with the expected DCQ of 100mmscfd). Meanwhile, the LNG contribution from the 8.5%‐owned Mozambique Offshore Area 1 will begin with its first 5mta train in 2020E and the second 5mta in 2021E. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 8
Figure 3: PTTEP’s revision on its five‐year target petroleum sales volume
Petroleum sales volume
2014E
2015E
2016E
2017E
2018E
2019E
322
343
342
337
322
334
% CAGR (2015-19E)
PTTEP’s guidance Sales volume (kboe/d) - new Sales volume (kboe/d) - previous
325
347
336
322
305
na
% revision from previous forecast
-1%
-1%
2%
5%
6%
na
% growth YoY
10%
7%
0%
-1%
-4%
4%
KTZmico's forecast Sales volume (kboe/d) - new Sales volume (kboe/d) - previous % revision from previous forecast % growth YoY % diff. from PTTEP’s guidance
316 316 0% 8% -2%
343 343 0% 9% 0%
342 342 0% 0% 0%
330 330 0% -3% -2%
322 322 0% -3% 0%
319 319 0% -1% -4%
0.7% na
0.2% 0.2%
Source: Company data, KT ZMICO Research 2014‐16E earnings and 2015E TP maintained Given the negligible change in CAPEX with the back‐end loaded expenditures subject to change due mainly to the aforementioned projects that are awaiting a final investment decision by the company, and our projected sales volume in 2014‐19E either being in line or 2‐4% less conservative than the company’s guidance (note that we don’t incorporate the volume contribution from the Ubon field or the Myanmar M3 project in 2019E), we maintain our 2014‐ 16E NP forecasts calling for ‐5% CAGR, largely due to the effect of the low oil price environment (with our Dubai assumption of US$70/bbl in 2015E and US$75/bbl in 2016E from US$97/bbl in 2014E) on its 30% liquid‐linked sales volume. Note that our 4Q14E and 2014E earnings forecasts for PTTEP have downside risk, particularly from the non‐cash impairment loss linked to the short‐lived Montara oil field (~US$300mn given oil production volume over two years and the US$25/bbl oil price de‐based from the benchmark), and probably from other uneconomic petroleum fields (the Mariana Oil Sands project, for example), reflecting a bear market with de‐based oil prices in the next few years (per the accounting standards). We also maintain our 2015E DCF‐based TP of Bt142/share.
Figure 4: Our key assumptions and earnings forecasts for PTTEP in 2014‐16E
Petroleum sales volume (boe/d) Dubai (US$/bbl) Average selling price (US$/boe) Unit cost (US$/boe) Sales (Btmn) EBITDA (Btmn) Core profit (Btmn) Net profit (Btmn) EPS (Bt) % growth in core profit % growth in net profit 2015E DCF-based TP (WACC 12%, LTG 1%)
2014E 315,772 97 65 40 251,088 174,483 56,938 56,128 14.14 -3% 0% 142
2015E 342,925 70 56 37 232,223 160,215 46,530 46,530 11.72 -18% -17%
2016E 342,141 75 57 37 232,677 160,596 49,724 50,467 12.71 7% 8%
Source: KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 8
Sensitivity analysis on the rolling low of oil prices We conducted a sensitivity study on the rolling low of the Dubai crude assumption to US$60s and to US$40s (vs. our base case of US$70/bbl in 2015E and US$75/bbl in 2016E) to determine the magnitude of the downside risk on PTTEP’s earnings forecast and TPs. Our study suggests that every US$10/bbl change in the Dubai assumption would be a source of downside risk to its earnings by 15% (Bt7.2‐7.5bn) and to its 2015E TP by Bt14. Thus, the study suggests a low‐case TP of Bt121 given a flat US$60s level and Bt92 given a flat US$40s level. Note that PTTEP’s current market price nearly implies a low US$60s level. Figure 5: Sensitivity study of changes in oil price and the possible impact to earnings and TPs 2015E NP (Btmn) PTTEP
2016E NP (Btmn)
15E TP (Bt)
downside risk (Bt/share)
base case
46,530
50,467
142
low 60s
39,375
39,320
121
(21)
low 40s
25,067
24,293
92
(50)
% downside risk - low 60s
-15%
-22%
% downside risk - low 40s
-46%
-52%
Source: KT ZMICO Research Still room for attractive M&A opportunities Given the company’s threshold policy of not exceeding a 0.5x D/E ratio and cash on hand, it still has approximately US$5bn available if a suitable M&A opportunity provides attractive valuation, with a particular focus on producing or near‐producing assets in Thailand and SE Asia.
Figure 6: PTTEP’s PBV band and its correlation to oil prices A) PTTEP’s PBV band
Source: Bloomberg, KT ZMICO Research
B) PTTEP share price in correlation to the crude oil price
Source: Bloomberg, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 8
Figure 7: PTTEP’s valuation comparison with regional peers
A) PTTEP’s 2015E PBV and ROE comparison with regional peers
B) PTTEP’s 2015E PBV/ROE comparison with regional peers
Source: Bloomberg, KT ZMICO Research
Figure 8: PTTEP’s valuation comparison with regional peers NAME PETROCHINA CO LTD-H SINOPEC SHANGHAI PETROCHEM-H CHINA
Mkt Cap (US$Mn) 346,095 7,354
PER (x) 14E 10.3 31.1 20.7
15E 11.1 14.6 12.8
PBV (x) 14E 15E 1.3 1.2 1.4 1.3 1.3 1.3
EV/EBITDA (x) 14E 15E 6.4 6.3 15.2 11.2 10.8 8.8
YLD (%) 14E 15E 3.6 3.4 1.1 1.5 2.4 2.4
ROE (%) 14E 15E 10.4 9.0 3.1 7.1 6.8 8.1
CITIC RESOURCES HOLDINGS LTD CNOOC LTD HONG KONG
1,065 60,192
50.0 7.2 28.6
11.3 8.7 10.0
0.7 1.2 1.0
0.7 1.2 0.9
23.2 3.0 13.1
8.0 3.1 5.5
3.7 3.7
3.1 3.1
1.4 14.9 8.2
6.0 11.7 8.8
BHARAT PETROLEUM CORP LTD HINDUSTAN PETROLEUM CORP INDIAN OIL CORP LTD OIL & NATURAL GAS CORP LTD RELIANCE INDUSTRIES LTD INDIA
7,433 3,026 12,849 47,574 45,669
14.4 12.2 11.8 10.1 11.2 11.9
11.8 9.4 9.5 8.6 10.4 9.9
2.1 1.3 1.1 1.6 1.3 1.5
1.9 1.2 1.0 1.4 1.1 1.3
9.4 9.6 9.1 5.0 8.8 8.4
8.3 8.7 7.7 4.5 7.7 7.4
2.4 2.7 2.6 3.1 1.2 2.4
2.6 3.3 3.2 3.7 1.3 2.8
15.8 10.5 9.9 16.5 12.0 12.9
16.8 12.9 11.2 17.1 11.8 14.0
HANWHA CHEMICAL CORP LG CHEM LTD SK INNOVATION CO LTD LOTTE CHEMICAL CORP S. KOREA
1,858 11,088 7,521 5,299
27.3 12.7 249 20.3 20.1
16.0 9.6 10.7 13.0 12.3
0.5 1.1 0.5 0.9 0.7
0.5 1.0 0.5 0.8 0.7
11.9 5.4 17.2 8.2 10.7
10.4 4.7 9.2 6.6 7.7
1.7 2.2 3.1 0.6 1.9
1.9 2.2 3.5 0.7 2.1
1.7 8.5 0.4 4.5 3.8
3.1 10.5 4.9 6.7 6.3
FORMOSA PLASTICS CORP NAN YA PLASTICS CORP FAR EASTERN NEW CENTURY CORP TAIWAN
13,772 15,584 4,966
18.9 14.9 15.6 16.5
18.0 16.1 15.7 16.6
1.6 1.7 1.0 1.4
1.5 1.6 1.0 1.4
30.8 17.3 11.0 19.7
26.4 16.1 10.9 17.8
3.3 4.2 4.5 4.0
3.7 4.2 4.6 4.2
8.8 11.2 4.8 8.3
9.4 10.0 5.1 8.2
PTT PCL PTT EXPLOR & PROD PUBLIC CO THAILAND AVERAGE
29,275 14,248
10.9 8.3 9.6 17.9
9.6 10.1 9.8 11.9
1.3 1.0 1.2 1.2
1.2 1.0 1.1 1.1
5.1 3.0 4.0 11.1
5.0 3.3 4.1 8.6
3.2 4.6 3.9 3.0
3.7 3.8 3.7 3.1
12.4 13.4 12.9 8.8
12.8 10.0 11.4 9.5
Source: Bloomberg, KT ZMICO Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 8
Financial tables PROFIT & LOSS (Btm) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Forex gain (loss) Extra Items Gain (loss) from affiliates Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt)
2012 212,537 (71,219) 141,318 (34,319) 149,691 42,692 106,999 (5,812) 2,742 103,928 (42,120) (1,112) (3,525) 145 57,316 17.08 17.08 63,601 16.02 5.80
2013 224,973 (81,193) 143,780 (35,614) 158,517 50,351 108,166 (6,175) 2,911 104,902 (46,712) (3,083) 857 190 56,155 14.07 14.07 58,878 14.83 5.66
2014E 251,088 (111,750) 139,338 (39,344) 174,483 74,489 99,994 (6,912) 2,000 95,082 (38,294) (1,200) 390 150 56,128 14.14 14.14 56,938 14.34 5.37
2015E 232,223 (113,150) 119,073 (37,197) 160,215 78,339 81,876 (7,080) 2,450 77,246 (30,898) 0 0 182 46,530 11.72 11.72 46,530 11.72 4.45
2016E 232,677 (109,632) 123,045 (37,245) 160,596 74,796 85,800 (5,176) 2,000 82,624 (33,050) 743 0 150 50,467 12.71 12.71 49,724 12.53 4.83
BALANCE SHEET (Btm) Cash and equivalents Accounts receivable Inventories PP&E-net Other assets Total assets ST debt & current portion Long-term debt Total liabilities Paid-up shares Shareholder equity Total liab. & shareholder equity
2012 70,205 31,876 9,916 336,058 153,458 601,513 5,010 110,562 273,409 3,970 328,104 601,513
2013 77,348 34,336 12,246 415,809 168,130 707,868 11,699 120,310 323,331 3,970 384,536 707,868
2014E 98,237 27,516 13,777 480,053 168,878 788,462 11,700 139,350 336,842 3,970 451,621 788,462
2015E 85,270 25,449 13,950 517,613 163,564 805,847 45,821 96,288 325,378 3,970 480,469 805,847
2016E 89,534 25,499 13,516 541,319 158,556 828,424 40,890 95,500 316,666 3,970 511,758 828,424
CASH FLOW (Btm) Net income Forex and other extraordinary adjustments Depreciation & amortization Change in working capital Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt)
2012 57,316 1,112 42,692 (9,427) 91,693 (84,128)
2013 56,155 3,083 50,351 2,661 112,250 (130,371)
2014E 56,128 1,200 74,489 781 132,598 (138,733)
2015E 46,530 0 78,339 (1,009) 123,859 (115,899)
2016E 50,467 (743) 74,796 (2,034) 122,486 (98,502)
(84,128) (7,173) 90,372 (19,463) (43,896) 19,840 27,405 7,565 1.91
(130,371) 16,437 22,929 (22,462) 8,359 25,263 7,142 (18,121) (4.56)
(138,733) 19,042 32,435 (21,329) (3,123) 27,025 20,890 (6,135) (1.55)
(115,899) (8,941) 182 (17,681) 5,513 (20,927) (12,967) 7,960 2.01
(98,502) (5,718) 150 (19,177) 5,025 (19,720) 4,264 23,984 6.04
2012 25.3 28.8 26.7 66.5 70.4 50.3 27.0 29.9 40.5
2013 5.9 5.9 (17.6) 63.9 70.5 48.1 25.0 26.2 44.5
2014E 11.6 10.1 0.5 55.5 69.5 39.8 22.4 22.7 40.3
2015E (7.5) (8.2) (17.1) 51.3 69.0 35.3 20.0 20.0 40.0
2016E 0.2 0.2 8.5 52.9 69.0 36.9 21.7 21.4 40.0
PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 7 of 8
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market return over six months period because of specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to below market return over six months period because of specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 8 of 8
Company Update
Close Bt118.00
Energy
Earnings upgrade/Earnings downgrade/Overview unchanged
December 24, 2014
The risk is on the downside
FY14
FY15
Consensus EPS (Bt)
14.747
13.492
KT ZMICO vs. consensus Share data
14.14%
11.72%
Reuters / Bloomberg
PTTEP.BK/PTTEP TB 3,969.99
Paid‐up Shares (m)
1.00
Par (Bt) Market cap (Bt bn / US$ m) Foreign limit / actual (%) 52 week High / Low (Bt) Avg. daily T/O (shares 000)
468.00/14,239.00 40.00/20.73 172.50/99.75 5,697.00 4.43
NVDR (%) Estimated free float (%)
34.68
Beta
1.25
URL
www.pttep.com
CGR 2013
Patcharin Karsemarnuntana Analyst, no 17834 [email protected] 66 (0) 2695‐5837
Lack of positive catalysts Given the unfavorable oil price environment entering the bear market (with an expected sustained low oil price towards 1H15E), PTTEP’s earnings estimates and TP are at risk for possible downside should the Dubai price fall below our assumption (US$70 in 2015E and US$75 in 2016E). Given the lack of positive catalysts, we maintain our “Underperform” rating for PTTEP, with our sensitivity study suggesting a low‐case TP of Bt121 given a flat US$60s oil price and Bt92 given a flat US$40s oil price level. Introducing 5‐year expenditures plan with negligible change in CAPEX PTTEP disclosed its five‐year expenditures (CAPEX and OPEX) totaling US$24.3bn for 2015‐19E, (‐4% from earlier for 2014‐18E), with the main focus on its producing assets (65% of expenditures). Given that new projects, including Mozambique Offshore Area 1, M3, and Mariana Oil Sands, have been delayed with the FID to be made in late 2015‐17E, there is room for investment flexibility in terms of postponing expenditures if the projects are determined to be uneconomic. Sales volume projection of flat growth during 2015‐19E The company also announced a five‐year sales volume target at 0.7% CAGR for 2015‐19E, with solid growth expected in 2014E‐2015E before likely seeing a slight decline in 2017‐18; meanwhile, the sales volume projection with 4% YoY growth in 2019E factors in the new volume contribution from the Ubon field (part of the Contract 4 project) and the Myanmar M3 project. 2014‐16E earnings and 2015E TP maintained Given the negligible change in CAPEX and our projected sales volume in 2014‐19E either being in line or 2‐4% less conservative than the company’s guidance, we maintain our 2014‐16E NP forecasts calling for ‐5% CAGR, largely due to the effect of the low oil price environment on its 30% liquid‐linked sales volume. We also maintain our 2015E DCF‐ based TP of Bt142/share. Financial and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
2012 212,537 57,316 17.08 26.7% 5.80 82.65 2012 6.91 3.43 1.43 4.9% 21.7% 13.8%
2013 224,973 56,155 14.07 ‐17.6% 5.66 96.86 2013 8.39 3.30 1.22 4.8% 15.8% 14.2%
2014E 251,088 56,128 14.14 0.5% 5.37 113.76 2014E 8.35 2.99 1.04 4.6% 13.4% 11.7%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 8
2015E 232,223 46,530 11.72 ‐17.1% 4.45 121.03 2015E 10.07 3.28 0.98 3.8% 10.0% 11.8%
2016E 232,677 50,467 12.71 8.5% 4.83 128.91 2016E 9.28 3.21 0.92 4.1% 10.2% 9.2%
Introducing 5‐year expenditures plan (2015‐19E) with negligible change in CAPEX PTTEP disclosed its five‐year expenditures (CAPEX and OPEX) totaling US$24.3bn for 2015‐19E, (‐4% from earlier guidance for 2014‐18E when its oil sands’ asset swap was done in late Feb‐ 2014). The expenditures break down into 1) CAPEX of US$15.9bn, ‐3% from earlier given the delay of CAPEX for the Mozambique Offshore Area 1 project and the Mariana Oil Sands project (in line with the shift of their Final Investment Decision (FID) to late 2015E‐early 2016E, and to 2016E‐2017E, respectively), which will more than offset the larger CAPEX for the acquired assets from Hess and the new oil field called “Ubon” (part of the Contract 4 project), and 2) OPEX of US$8.4bn (‐5% from earlier, largely due to cost optimization). The expenditures average at US$3bn a year for CAPEX and US$1.7bn a year for OPEX, with the main focus (65% of expenditures) on its producing assets (mainly the Bongkot project, the Arthit project, the S1 project, the Contract 4 project, the MTJDA project, and the Zawtika project) in order to maintain their production plateaus, and 30% on its developing assets (including the Ubon field, the Myanmar M3 project and the Mariana Oil Sands project); meanwhile, the remaining 5% is for exploration assets. Given the unfavorable oil price environment, the company’s new projects have been delayed with the FID to be made in late 2015‐17E, including the Mozambique Offshore Area 1 project (late 2015E‐early 2016E), the Ubon project (late 2015E), the Myanmar M3 project (2016E), and the Mariana Oil Sands project (2016E‐2017E). There is still room for investment flexibility in terms of postponing expenditures if the projects are determined to be uneconomic. Thus, the company’s expenditures in 2018‐19E are subject to change depending on whether new projects with back‐end loaded CAPEX are sanctioned Figure 1: PTTEP’s revision on its five‐year investment expenditures New forecasts unit : US$mn Capital Expenditures Operating Expenditures Acquisition (M&A) Total Expenditures
2014E
2015E
2016E
2017E
2018E
2019E
Total 2015-19E
2,936 1,587 1,199 5,722
3,071 1,761
3,437 1,767
3,833 1,660
3,110 1,648
2,411 1,597
4,832
5,204
5,493
4,758
4,008
15,862 8,433 24,295
Previous forecasts unit : US$mn Capital Expenditures Operating Expenditures Acquisition (M&A) Total Expenditures
2014E
2015E
2016E
2017E
2018E
2019E
Total 2014-18E
3,388 2,010
3,562 1,679
3,074 1,671
3,514 1,742
2,866 1,775
na na
16,404 8,877
5,398
5,241
4,745
5,256
4,641
na
25,281
-13% -21%
-14% 5%
12% 6%
9% -5%
9% -7%
na na
-3% -5%
6%
-8%
10%
5%
3%
na
-4%
% revision from previous Capital Expenditures Operating Expenditures Acquisition (M&A) Total Expenditures
Source: Company data, KT ZMICO Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 8
CAPEX focuses mainly on areas of high expertise in Thailand and SEA The company’s CAPEX spending is mainly focused on petroleum assets in Thailand and elsewhere in South East Asia (with Myanmar as the key area), accounting for approximately 60% and 20%, respectively.
Figure 2: PTTEP’s CAPEX by region
A) 2015E CAPEX breakdown
Source: The Company, KT ZMICO Research
B) 2015‐19E CAPEX breakdown
Source: The Company, KT ZMICO Research
Sales volume projection of flat growth during 2015‐19E The company also announced a five‐year sales volume target at 0.7% CAGR for 2015‐19E. Despite its guidance of a negligible sales volume cut of 1% in 2015E, an upward revision by 2‐ 6% was made to 2016‐18E from its earlier informal guidance. Meanwhile, the initial sales volume target disclosed by the company for 2019E is 334kboe/d. Based on the company’s guidance on sales volume over the next five years, there will be solid growth in 2014E at 322kboe/d (+10% YoY) and in 2015E at 343kboe/d (+7% YoY), largely due to 1) the full‐year volume contribution from the Zawtika project (start‐up in Aug‐2014, with full DCQ of 300mmscfd); 2) the full‐year volume contribution from the acquired Hess assets (15% of the Contract 4 project and 30% of the Sinphuhorm project in Apr‐2014); and 3) the first oil production at the Algeria 433a&416b project (with projected crude oil production capacity of 20kbd in 2Q15E). The drop in sales volume during 2017‐18E reflects the natural decline of its oil fields i.e., Montara and Vietnam 16‐1. Meanwhile, the initial sales volume target disclosed by the company for 2019E (at 334kboe/d) reflects new project kickoffs, including the 60%‐owned Ubon field in 1H19E (with crude oil production capacity of 30kbd and gas production capacity of 100mmscfd) and the 80%‐owned Myanmar M3 project in 2H19 (with the expected DCQ of 100mmscfd). Meanwhile, the LNG contribution from the 8.5%‐owned Mozambique Offshore Area 1 will begin with its first 5mta train in 2020E and the second 5mta in 2021E. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 8
Figure 3: PTTEP’s revision on its five‐year target petroleum sales volume
Petroleum sales volume
2014E
2015E
2016E
2017E
2018E
2019E
322
343
342
337
322
334
% CAGR (2015-19E)
PTTEP’s guidance Sales volume (kboe/d) - new Sales volume (kboe/d) - previous
325
347
336
322
305
na
% revision from previous forecast
-1%
-1%
2%
5%
6%
na
% growth YoY
10%
7%
0%
-1%
-4%
4%
KTZmico's forecast Sales volume (kboe/d) - new Sales volume (kboe/d) - previous % revision from previous forecast % growth YoY % diff. from PTTEP’s guidance
316 316 0% 8% -2%
343 343 0% 9% 0%
342 342 0% 0% 0%
330 330 0% -3% -2%
322 322 0% -3% 0%
319 319 0% -1% -4%
0.7% na
0.2% 0.2%
Source: Company data, KT ZMICO Research 2014‐16E earnings and 2015E TP maintained Given the negligible change in CAPEX with the back‐end loaded expenditures subject to change due mainly to the aforementioned projects that are awaiting a final investment decision by the company, and our projected sales volume in 2014‐19E either being in line or 2‐4% less conservative than the company’s guidance (note that we don’t incorporate the volume contribution from the Ubon field or the Myanmar M3 project in 2019E), we maintain our 2014‐ 16E NP forecasts calling for ‐5% CAGR, largely due to the effect of the low oil price environment (with our Dubai assumption of US$70/bbl in 2015E and US$75/bbl in 2016E from US$97/bbl in 2014E) on its 30% liquid‐linked sales volume. Note that our 4Q14E and 2014E earnings forecasts for PTTEP have downside risk, particularly from the non‐cash impairment loss linked to the short‐lived Montara oil field (~US$300mn given oil production volume over two years and the US$25/bbl oil price de‐based from the benchmark), and probably from other uneconomic petroleum fields (the Mariana Oil Sands project, for example), reflecting a bear market with de‐based oil prices in the next few years (per the accounting standards). We also maintain our 2015E DCF‐based TP of Bt142/share.
Figure 4: Our key assumptions and earnings forecasts for PTTEP in 2014‐16E
Petroleum sales volume (boe/d) Dubai (US$/bbl) Average selling price (US$/boe) Unit cost (US$/boe) Sales (Btmn) EBITDA (Btmn) Core profit (Btmn) Net profit (Btmn) EPS (Bt) % growth in core profit % growth in net profit 2015E DCF-based TP (WACC 12%, LTG 1%)
2014E 315,772 97 65 40 251,088 174,483 56,938 56,128 14.14 -3% 0% 142
2015E 342,925 70 56 37 232,223 160,215 46,530 46,530 11.72 -18% -17%
2016E 342,141 75 57 37 232,677 160,596 49,724 50,467 12.71 7% 8%
Source: KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 8
Sensitivity analysis on the rolling low of oil prices We conducted a sensitivity study on the rolling low of the Dubai crude assumption to US$60s and to US$40s (vs. our base case of US$70/bbl in 2015E and US$75/bbl in 2016E) to determine the magnitude of the downside risk on PTTEP’s earnings forecast and TPs. Our study suggests that every US$10/bbl change in the Dubai assumption would be a source of downside risk to its earnings by 15% (Bt7.2‐7.5bn) and to its 2015E TP by Bt14. Thus, the study suggests a low‐case TP of Bt121 given a flat US$60s level and Bt92 given a flat US$40s level. Note that PTTEP’s current market price nearly implies a low US$60s level. Figure 5: Sensitivity study of changes in oil price and the possible impact to earnings and TPs 2015E NP (Btmn) PTTEP
2016E NP (Btmn)
15E TP (Bt)
downside risk (Bt/share)
base case
46,530
50,467
142
low 60s
39,375
39,320
121
(21)
low 40s
25,067
24,293
92
(50)
% downside risk - low 60s
-15%
-22%
% downside risk - low 40s
-46%
-52%
Source: KT ZMICO Research Still room for attractive M&A opportunities Given the company’s threshold policy of not exceeding a 0.5x D/E ratio and cash on hand, it still has approximately US$5bn available if a suitable M&A opportunity provides attractive valuation, with a particular focus on producing or near‐producing assets in Thailand and SE Asia.
Figure 6: PTTEP’s PBV band and its correlation to oil prices A) PTTEP’s PBV band
Source: Bloomberg, KT ZMICO Research
B) PTTEP share price in correlation to the crude oil price
Source: Bloomberg, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 8
Figure 7: PTTEP’s valuation comparison with regional peers
A) PTTEP’s 2015E PBV and ROE comparison with regional peers
B) PTTEP’s 2015E PBV/ROE comparison with regional peers
Source: Bloomberg, KT ZMICO Research
Figure 8: PTTEP’s valuation comparison with regional peers NAME PETROCHINA CO LTD-H SINOPEC SHANGHAI PETROCHEM-H CHINA
Mkt Cap (US$Mn) 346,095 7,354
PER (x) 14E 10.3 31.1 20.7
15E 11.1 14.6 12.8
PBV (x) 14E 15E 1.3 1.2 1.4 1.3 1.3 1.3
EV/EBITDA (x) 14E 15E 6.4 6.3 15.2 11.2 10.8 8.8
YLD (%) 14E 15E 3.6 3.4 1.1 1.5 2.4 2.4
ROE (%) 14E 15E 10.4 9.0 3.1 7.1 6.8 8.1
CITIC RESOURCES HOLDINGS LTD CNOOC LTD HONG KONG
1,065 60,192
50.0 7.2 28.6
11.3 8.7 10.0
0.7 1.2 1.0
0.7 1.2 0.9
23.2 3.0 13.1
8.0 3.1 5.5
3.7 3.7
3.1 3.1
1.4 14.9 8.2
6.0 11.7 8.8
BHARAT PETROLEUM CORP LTD HINDUSTAN PETROLEUM CORP INDIAN OIL CORP LTD OIL & NATURAL GAS CORP LTD RELIANCE INDUSTRIES LTD INDIA
7,433 3,026 12,849 47,574 45,669
14.4 12.2 11.8 10.1 11.2 11.9
11.8 9.4 9.5 8.6 10.4 9.9
2.1 1.3 1.1 1.6 1.3 1.5
1.9 1.2 1.0 1.4 1.1 1.3
9.4 9.6 9.1 5.0 8.8 8.4
8.3 8.7 7.7 4.5 7.7 7.4
2.4 2.7 2.6 3.1 1.2 2.4
2.6 3.3 3.2 3.7 1.3 2.8
15.8 10.5 9.9 16.5 12.0 12.9
16.8 12.9 11.2 17.1 11.8 14.0
HANWHA CHEMICAL CORP LG CHEM LTD SK INNOVATION CO LTD LOTTE CHEMICAL CORP S. KOREA
1,858 11,088 7,521 5,299
27.3 12.7 249 20.3 20.1
16.0 9.6 10.7 13.0 12.3
0.5 1.1 0.5 0.9 0.7
0.5 1.0 0.5 0.8 0.7
11.9 5.4 17.2 8.2 10.7
10.4 4.7 9.2 6.6 7.7
1.7 2.2 3.1 0.6 1.9
1.9 2.2 3.5 0.7 2.1
1.7 8.5 0.4 4.5 3.8
3.1 10.5 4.9 6.7 6.3
FORMOSA PLASTICS CORP NAN YA PLASTICS CORP FAR EASTERN NEW CENTURY CORP TAIWAN
13,772 15,584 4,966
18.9 14.9 15.6 16.5
18.0 16.1 15.7 16.6
1.6 1.7 1.0 1.4
1.5 1.6 1.0 1.4
30.8 17.3 11.0 19.7
26.4 16.1 10.9 17.8
3.3 4.2 4.5 4.0
3.7 4.2 4.6 4.2
8.8 11.2 4.8 8.3
9.4 10.0 5.1 8.2
PTT PCL PTT EXPLOR & PROD PUBLIC CO THAILAND AVERAGE
29,275 14,248
10.9 8.3 9.6 17.9
9.6 10.1 9.8 11.9
1.3 1.0 1.2 1.2
1.2 1.0 1.1 1.1
5.1 3.0 4.0 11.1
5.0 3.3 4.1 8.6
3.2 4.6 3.9 3.0
3.7 3.8 3.7 3.1
12.4 13.4 12.9 8.8
12.8 10.0 11.4 9.5
Source: Bloomberg, KT ZMICO Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 8
Financial tables PROFIT & LOSS (Btm) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Forex gain (loss) Extra Items Gain (loss) from affiliates Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt)
2012 212,537 (71,219) 141,318 (34,319) 149,691 42,692 106,999 (5,812) 2,742 103,928 (42,120) (1,112) (3,525) 145 57,316 17.08 17.08 63,601 16.02 5.80
2013 224,973 (81,193) 143,780 (35,614) 158,517 50,351 108,166 (6,175) 2,911 104,902 (46,712) (3,083) 857 190 56,155 14.07 14.07 58,878 14.83 5.66
2014E 251,088 (111,750) 139,338 (39,344) 174,483 74,489 99,994 (6,912) 2,000 95,082 (38,294) (1,200) 390 150 56,128 14.14 14.14 56,938 14.34 5.37
2015E 232,223 (113,150) 119,073 (37,197) 160,215 78,339 81,876 (7,080) 2,450 77,246 (30,898) 0 0 182 46,530 11.72 11.72 46,530 11.72 4.45
2016E 232,677 (109,632) 123,045 (37,245) 160,596 74,796 85,800 (5,176) 2,000 82,624 (33,050) 743 0 150 50,467 12.71 12.71 49,724 12.53 4.83
BALANCE SHEET (Btm) Cash and equivalents Accounts receivable Inventories PP&E-net Other assets Total assets ST debt & current portion Long-term debt Total liabilities Paid-up shares Shareholder equity Total liab. & shareholder equity
2012 70,205 31,876 9,916 336,058 153,458 601,513 5,010 110,562 273,409 3,970 328,104 601,513
2013 77,348 34,336 12,246 415,809 168,130 707,868 11,699 120,310 323,331 3,970 384,536 707,868
2014E 98,237 27,516 13,777 480,053 168,878 788,462 11,700 139,350 336,842 3,970 451,621 788,462
2015E 85,270 25,449 13,950 517,613 163,564 805,847 45,821 96,288 325,378 3,970 480,469 805,847
2016E 89,534 25,499 13,516 541,319 158,556 828,424 40,890 95,500 316,666 3,970 511,758 828,424
CASH FLOW (Btm) Net income Forex and other extraordinary adjustments Depreciation & amortization Change in working capital Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt)
2012 57,316 1,112 42,692 (9,427) 91,693 (84,128)
2013 56,155 3,083 50,351 2,661 112,250 (130,371)
2014E 56,128 1,200 74,489 781 132,598 (138,733)
2015E 46,530 0 78,339 (1,009) 123,859 (115,899)
2016E 50,467 (743) 74,796 (2,034) 122,486 (98,502)
(84,128) (7,173) 90,372 (19,463) (43,896) 19,840 27,405 7,565 1.91
(130,371) 16,437 22,929 (22,462) 8,359 25,263 7,142 (18,121) (4.56)
(138,733) 19,042 32,435 (21,329) (3,123) 27,025 20,890 (6,135) (1.55)
(115,899) (8,941) 182 (17,681) 5,513 (20,927) (12,967) 7,960 2.01
(98,502) (5,718) 150 (19,177) 5,025 (19,720) 4,264 23,984 6.04
2012 25.3 28.8 26.7 66.5 70.4 50.3 27.0 29.9 40.5
2013 5.9 5.9 (17.6) 63.9 70.5 48.1 25.0 26.2 44.5
2014E 11.6 10.1 0.5 55.5 69.5 39.8 22.4 22.7 40.3
2015E (7.5) (8.2) (17.1) 51.3 69.0 35.3 20.0 20.0 40.0
2016E 0.2 0.2 8.5 52.9 69.0 36.9 21.7 21.4 40.0
PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 7 of 8
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market return over six months period because of specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to below market return over six months period because of specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 8 of 8
