PTT Global Chemical
PTT Global Chemical Outperform (16E TP Bt69.00)
Company Update
Close Bt60.00
Petrochemicals June 14, 2016
Earnings upgrade/ Earnings downgrade / Overview unchanged
Unplanned shutdown causing short‐term but limited impact Price Performance (%)
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
5.669
6.366
KT ZMICO vs. consensus Share data
‐8.8%
0.4%
Reuters / Bloomberg
PTTGC.BK/PTTGC TB
Paid‐up Shares (m)
4,508.85
Par (Bt)
10.00
Market cap (Bt bn / US$ m)
271.00/7,687.00
Foreign limit / actual (%)
37.00/18.77
52 week High / Low (Bt)
71.25/44.25
Avg. daily T/O (shares 000)
13,576.00
NVDR (%)
9.19
Estimated free float (%)
50
Beta
2.04
URL
www.pttgcgroup.com
CGR
Anti‐corruption
Level 4 (Certified)
Patcharin Karsemarnuntana Analyst, no 17834 [email protected] 66 (0) 2695‐5837
Short‐term impact; long term intact The company’s unplanned shutdown at its 1mta cracker in mid‐2Q16 is likely to have a negative impact on its share price, particularly in the short term on the anticipation of weak 2Q16E earnings against other downstream. Despite the cut of its 2016E NP estimate (by 9%), acceleration of earnings should be seen in 2H16E on a resumed and smooth operation, along with the solid PE spread. Meanwhile, its growth potential is intact, with new projects (i.e., Map Ta Phut retrofit, US petrochemical complex) to lead to long‐term earnings enlargement. Our Outperform rating is maintained with the newly‐revised TP of Bt69. Unplanned shutdown at 1mta cracker PTTGC’s Olefins Unit#3 (ethylene capacity: 1mta) has had an unplanned shutdown since May 17, 2016 to repair the furnace coils, which were damaged from a power outage and thermal shock within the coil. According to the new notification to the SET yesterday evening, the company expects Olefins Unit #3 to resume its operation at 66% of capacity by mid‐Jun 2016 and it will ramp up to 100% by Aug‐2016 due to the lead time for ordering equipment. Thus, the overall olefins utilization rate is likely to average at 84% in 2Q16E and 92% in 3Q16E. Estimated opportunity loss of US$55mn from volume loss incurred The plant has insurance coverage for 1) machinery breakdown, with a US$5mn deductible; and 2) business interruption (BI), with a 90‐day grace period. Given the assumption that the plant will resume operations within the grace period, the company will be ineligible to receive BI coverage, implying that it will not be covered for the lost volume from the unplanned shutdown at the 1mta cracker, particularly during the entire one‐month shutdown and the ramp‐up period. Although the company has certain measures to minimize the impact with feedstock management among its olefins fleet (Unit #1‐3), we estimate the net volume loss to be roughly 80k tons, implying an opportunity loss of US$55mn from lost production, along with US$5mn in deductible expenses from machinery breakdown. Meanwhile, the import shortfall of ethylene and MEG for customers under contract agreements is unlikely to be a burden for the company. 2016E NP cut by 9% Given that this unplanned shutdown will reduce the overall utilization rate of the olefins fleet to 89% in 2016E (vs. 95% earlier), we cut the 2016E NP by 9% to Bt23.3bn and the 2016E DCF‐based TP to Bt69/share (from Bt72 earlier). Its 2Q16E performance is likely to be another weak quarter given the impact of this unplanned shutdown along with the impact of the 63‐day planned shutdown at its refinery, making it unlikely to benefit significantly from possible stock gain in the quarter (~US$3‐ 4/bbl with the Dubai average at US$46/bbl in Jun MTD vs. US$35/bbl in Mar‐16). However, acceleration of earnings should be seen in 2H16E on a resumed and smooth operation, along with the solid PE spread. Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
2014 554,695 15,372 3.41 (53.62) 2.37 49.85 2014 17.61 10.31 1.20 4.0% 6.6% 30.0%
2015 403,440 20,502 4.55 33.38 2.80 51.35 2015 13.20 7.78 1.17 4.7% 9.0% 25.1%
2016E 374,546 23,299 5.17 13.64 2.32 54.09 2016E 11.62 6.62 1.11 3.9% 9.8% 10.1%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
2017E 440,685 28,824 6.39 23.72 2.88 58.16 2017E 9.39 5.31 1.03 4.8% 11.4% 1.3%
2018E 466,906 29,118 6.46 1.02 2.90 61.74 2018E 9.29 4.96 0.97 4.8% 10.8% ‐4.3%
Figure 1: Price and spread movement ‐ olefins and polymer chain Unit: US$/ton PTTGC – related products and spread Derivatives
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 QTD % YoY % QoQ
Spread Ethylene - MOPJ
Propylene - MOPJ
HDPE - MOPJ
LLDPE - MOPJ
LDPE - MOPJ
MEG (0.65 Ethylene)
1,237 1,149 1,065 1,247 1,282 1,173 1,143 1,208 1,182 1,093 1,143 1,035 903 1,027 1,025 837 732
230 253 285 342 434 407 402 481 507 496 565 567 532 823 509 588 668
261 364 342 303 345 439 416 420 434 328 388 385 339 377 275 142 305
374 482 428 449 521 585 569 590 620 618 691 802 694 812 774 708 759
297 449 426 455 515 575 570 603 625 627 688 785 687 811 763 713 770
370 455 412 425 498 586 649 718 705 653 688 793 698 837 783 713 773
424 404 285 411 375 351 284 281 245 152 182 246 236 126 394 166 74
820 (20.2) 12.0
693 (15.8) 3.7
308 (18.4) 0.9
742 (8.6) (2.2)
769 (5.2) (0.2)
775 (7.4) 0.2
102 (19.0) 37.7
Naphtha MOPJ
Ethylene SEA
Propylene SEA
HDPE SEA
LLDPE SEA
LDPE SEA
MEG SEA
1,021 894 915 944 961 858 920 946 935 951 913 647 494 563 461 445 344
1,251 1,146 1,200 1,286 1,395 1,265 1,322 1,427 1,441 1,447 1,478 1,214 1,026 1,386 970 1,033 1,012
1,281 1,257 1,257 1,247 1,306 1,297 1,336 1,366 1,369 1,279 1,301 1,032 833 940 736 587 649
1,395 1,376 1,343 1,393 1,482 1,443 1,489 1,536 1,554 1,569 1,604 1,448 1,188 1,375 1,234 1,153 1,103
1,318 1,342 1,341 1,399 1,477 1,433 1,490 1,549 1,560 1,578 1,601 1,431 1,181 1,375 1,224 1,158 1,114
1,391 1,349 1,327 1,369 1,459 1,444 1,569 1,664 1,639 1,605 1,601 1,440 1,192 1,401 1,244 1,158 1,117
411 (26.9) 19.6
1,104 (20.3) 9.1
719 (23.5) 10.8
1,153 (16.1) 4.6
1,180 (14.2) 5.9
1,186 (15.3) 6.2
Source: PTTGC, KT ZMICO Research
Figure 2: Price and spread movement – aromatics chain Unit : US$/ton
PTTGC – related products and spreads
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 QTD % YoY % QoQ
PX Spot Taiwan 1,635 1,443 1,485 1,432 1,284 1,259 1,346 999 827 935 820 793 750
PX FECP 1,562 1,497 1,344 1,535 1,618 1,409 1,440 1,440 1,303 1,256 1,350 1,035 785 924 823 786 718
BZ Spot Korea 1,181 1,107 1,177 1,362 1,379 1,286 1,258 1,283 1,297 1,293 1,301 954 670 804 661 606 574
Condensate Erawan 1,006 927 918 931 948 870 929 937 917 922 872 634 453 533 427 375 303
PX Spot Taiwan ‐ Condensate
687 572 556 494 367 337 474 365 374 403 394 417 448
PX FECP ‐ Condensate 556 570 426 604 670 539 511 502 386 334 479 401 333 391 397 410 415
BZ Spot‐ Condensate 175 180 259 431 431 416 329 346 380 370 430 320 217 271 235 230 272
800 (14.5) 6.6
797 (13.8) 11.0
624 (22.3) 8.8
393 (26.3) 29.7
449 11.4 0.2
404 3.2 (2.7)
231 (14.6) (15.0)
Source: PTTGC, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
Figure 3: PTTGC’s PBV band
Source: Bloomberg, KT ZMICO Research
Figure 4: PTTGC’s valuation comparison with regional peers NAME
Mkt Cap (US$Mn)
PER (x) 16E 17E
PBV (x) 16E 17E
EV/EBITDA (x) 16E 17E
YLD (%) 16E 17E
ROE (%) 16E 17E
PETRONAS CHEMICALS GROUP BHD FORMOSA PETROCHEMICAL CORP FORMOSA PLASTICS CORP NAN YA PLASTICS CORP TAIWAN IRPC PCL PTT GLOBAL CHEMICAL PCL SIAM CEMENT PCL/THE INDORAMA VENTURES PCL THAI OIL PCL THAILAND HANWHA CHEMICAL CORP SAMSUNG SDI CO LTD LG CHEM LTD LOTTE CHEMICAL CORP S. KOREA AVERAGE
12,654.3 25,617.9 15,527.2 14,692.1 2,833.0 7,680.7 16,227.3 4,376.6 3,665.7 3,419.9 6,621.8 15,191.8 7,535.9
18.9 17.9 16.1 13.8 16.7 11.3 11.6 12.3 19.3 8.7 12.1 9.1 20.0 12.5 6.7 12.1 13.6
2.0 3.0 1.6 1.4 2.0 1.2 1.1 2.4 1.9 1.3 1.6 0.8 0.7 1.3 2.5 1.3 1.7
9.2 11.5 23.9 13.4 14.5 7.5 6.6 9.7 10.5 5.9 7.9 8.0 n.a. 5.4 3.6 5.7 9.4
2.8 4.5 4.2 5.0 4.1 4.4 3.9 3.6 1.6 5.2 3.8 0.8 0.9 1.7 1.0 1.1 3.0
10.9 16.3 10.4 10.0 11.9 11.3 9.8 20.3 10.9 15.3 14.3 8.7 2.3 11.0 16.1 9.5 11.9
17.1 18.4 15.0 14.0 16.1 10.6 9.4 11.9 18.0 8.8 11.2 7.9 25.2 11.2 6.8 12.8 13.4
1.9 2.9 1.6 1.4 1.9 1.2 1.0 2.2 1.7 1.2 1.5 0.7 0.7 1.2 2.3 1.2 1.6
8.4 11.6 21.6 13.0 13.6 6.6 5.3 9.3 9.5 5.6 7.1 7.7 8.2 5.0 3.5 6.1 8.9
3.0 4.4 4.5 4.8 4.2 4.7 4.8 3.7 1.8 5.1 4.1 0.9 1.0 1.8 1.0 1.2 3.1
Source: Bloomberg, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
11.1 15.6 10.9 9.6 11.8 11.3 11.4 18.9 9.8 14.0 13.9 9.0 2.8 11.3 13.9 9.3 11.6
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 Minority interests Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt)
2013 552,881 (500,673) 52,208 (12,966) 55,979 16,737 39,242 (6,084) 3,757 36,915 (1,976) (1,322) (833) (77) 433 33,140 7.35 7.35 35,294 7.83 3.40
2014 554,695 (526,068) 28,627 (11,802) 32,767 15,942 16,825 (5,448) 5,240 16,617 (581) 117 (2,239) 177 1,280 15,372 3.41 3.41 16,396 3.64 2.37
2015 403,440 (366,168) 37,272 (11,424) 42,234 16,385 25,849 (5,178) 6,203 26,873 (1,984) (2,289) (2,531) 711 (278) 20,502 4.55 4.55 25,322 5.62 2.80
2016E 374,546 (338,593) 35,953 (9,495) 44,574 18,116 26,458 (3,527) 1,950 24,882 (2,788) 337 0 1,167 (300) 23,299 5.17 5.17 22,961 5.09 2.32
2017E 440,685 (396,458) 44,227 (11,199) 51,607 18,579 33,028 (3,228) 1,945 31,745 (3,913) 0 0 1,292 (300) 28,824 6.39 6.39 28,824 6.39 2.88
2018E 466,906 (422,452) 44,454 (11,350) 52,151 19,047 33,103 (2,772) 1,945 32,276 (4,196) 0 0 1,338 (300) 29,118 6.46 6.46 29,118 6.46 2.90
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 Minority interests Total liab. & shareholder equity
2013 44,384 61,779 50,240 230,934 45,373 432,710 24,438 95,785 187,353 45,088 238,503 6,855 432,710
2014 45,788 43,441 31,577 219,346 41,292 381,443 23,467 89,675 152,993 45,088 224,763 3,687 381,443
2015 47,741 38,274 29,930 220,213 41,387 377,545 9,871 95,976 143,280 45,088 231,552 2,713 377,545
2016E 54,222 31,811 27,830 204,039 42,434 360,335 7,745 70,994 113,443 45,088 243,878 3,013 360,335
2017E 67,400 37,428 32,586 193,185 43,535 374,133 13,377 57,417 108,602 45,088 262,218 3,313 374,134
2018E 69,286 44,772 34,722 181,862 44,650 375,292 5,577 51,841 93,314 45,088 278,365 3,613 375,292
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)
2013 33,140 1,322 16,737 (10,114) 41,085 (14,445)
2014 15,372 (117) 15,942 11,198 42,394 (14,760)
2015 20,502 2,289 16,385 5,450 44,626 (17,632)
2016E 23,299 (337) 18,116 5,054 46,131 (2,659)
2017E 28,824 0 18,579 (8,217) 39,186 (8,443)
2018E 29,118 0 19,047 (12,387) 35,778 (8,443)
(14,445) (16,634) (1,377) (15,337) (8,970) (42,317) (15,678) 26,640 5.91
(14,760) (7,080) (12,317) (15,337) 8,504 (26,230) 1,404 27,634 6.13
(17,632) (7,296) (2,591) (10,691) (4,463) (25,040) 1,953 26,993 5.98
(2,659) (27,108) 2,526 (12,630) 220 (36,992) 6,481 43,473 9.64
(8,443) (7,945) 992 (10,485) (128) (17,565) 13,178 30,744 6.82
(8,443) (13,377) 1,038 (12,971) (139) (25,449) 1,886 27,335 6.06
2013 (2.3) 3.8 (2.5) 9.4 10.1 7.1 6.0 6.4 5.4
2014 0.3 (41.5) (53.6) 5.2 5.9 3.0 2.8 3.0 3.5
2015 (27.3) 28.9 33.4 9.2 10.5 6.4 5.1 6.3 7.4
2016E (7.2) 5.5 13.6 9.6 11.9 7.1 6.2 6.1 11.2
2017E 17.7 15.8 23.7 10.0 11.7 7.5 6.5 6.5 12.3
2018E 6.0 1.1 1.0 9.5 11.2 7.1 6.2 6.2 13.0
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 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investment in the securities of KTB and ZMICO, investor should consider risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, PACE, PLE, TPOLY, BIGC, BJC. KT ZMICO is a co‐underwriter of TPBI.
Anti‐corruption Progress Indicator
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
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 returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to 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 5 of 5
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KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
Company Update
Close Bt60.00
Petrochemicals June 14, 2016
Earnings upgrade/ Earnings downgrade / Overview unchanged
Unplanned shutdown causing short‐term but limited impact Price Performance (%)
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
5.669
6.366
KT ZMICO vs. consensus Share data
‐8.8%
0.4%
Reuters / Bloomberg
PTTGC.BK/PTTGC TB
Paid‐up Shares (m)
4,508.85
Par (Bt)
10.00
Market cap (Bt bn / US$ m)
271.00/7,687.00
Foreign limit / actual (%)
37.00/18.77
52 week High / Low (Bt)
71.25/44.25
Avg. daily T/O (shares 000)
13,576.00
NVDR (%)
9.19
Estimated free float (%)
50
Beta
2.04
URL
www.pttgcgroup.com
CGR
Anti‐corruption
Level 4 (Certified)
Patcharin Karsemarnuntana Analyst, no 17834 [email protected] 66 (0) 2695‐5837
Short‐term impact; long term intact The company’s unplanned shutdown at its 1mta cracker in mid‐2Q16 is likely to have a negative impact on its share price, particularly in the short term on the anticipation of weak 2Q16E earnings against other downstream. Despite the cut of its 2016E NP estimate (by 9%), acceleration of earnings should be seen in 2H16E on a resumed and smooth operation, along with the solid PE spread. Meanwhile, its growth potential is intact, with new projects (i.e., Map Ta Phut retrofit, US petrochemical complex) to lead to long‐term earnings enlargement. Our Outperform rating is maintained with the newly‐revised TP of Bt69. Unplanned shutdown at 1mta cracker PTTGC’s Olefins Unit#3 (ethylene capacity: 1mta) has had an unplanned shutdown since May 17, 2016 to repair the furnace coils, which were damaged from a power outage and thermal shock within the coil. According to the new notification to the SET yesterday evening, the company expects Olefins Unit #3 to resume its operation at 66% of capacity by mid‐Jun 2016 and it will ramp up to 100% by Aug‐2016 due to the lead time for ordering equipment. Thus, the overall olefins utilization rate is likely to average at 84% in 2Q16E and 92% in 3Q16E. Estimated opportunity loss of US$55mn from volume loss incurred The plant has insurance coverage for 1) machinery breakdown, with a US$5mn deductible; and 2) business interruption (BI), with a 90‐day grace period. Given the assumption that the plant will resume operations within the grace period, the company will be ineligible to receive BI coverage, implying that it will not be covered for the lost volume from the unplanned shutdown at the 1mta cracker, particularly during the entire one‐month shutdown and the ramp‐up period. Although the company has certain measures to minimize the impact with feedstock management among its olefins fleet (Unit #1‐3), we estimate the net volume loss to be roughly 80k tons, implying an opportunity loss of US$55mn from lost production, along with US$5mn in deductible expenses from machinery breakdown. Meanwhile, the import shortfall of ethylene and MEG for customers under contract agreements is unlikely to be a burden for the company. 2016E NP cut by 9% Given that this unplanned shutdown will reduce the overall utilization rate of the olefins fleet to 89% in 2016E (vs. 95% earlier), we cut the 2016E NP by 9% to Bt23.3bn and the 2016E DCF‐based TP to Bt69/share (from Bt72 earlier). Its 2Q16E performance is likely to be another weak quarter given the impact of this unplanned shutdown along with the impact of the 63‐day planned shutdown at its refinery, making it unlikely to benefit significantly from possible stock gain in the quarter (~US$3‐ 4/bbl with the Dubai average at US$46/bbl in Jun MTD vs. US$35/bbl in Mar‐16). However, acceleration of earnings should be seen in 2H16E on a resumed and smooth operation, along with the solid PE spread. Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
2014 554,695 15,372 3.41 (53.62) 2.37 49.85 2014 17.61 10.31 1.20 4.0% 6.6% 30.0%
2015 403,440 20,502 4.55 33.38 2.80 51.35 2015 13.20 7.78 1.17 4.7% 9.0% 25.1%
2016E 374,546 23,299 5.17 13.64 2.32 54.09 2016E 11.62 6.62 1.11 3.9% 9.8% 10.1%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
2017E 440,685 28,824 6.39 23.72 2.88 58.16 2017E 9.39 5.31 1.03 4.8% 11.4% 1.3%
2018E 466,906 29,118 6.46 1.02 2.90 61.74 2018E 9.29 4.96 0.97 4.8% 10.8% ‐4.3%
Figure 1: Price and spread movement ‐ olefins and polymer chain Unit: US$/ton PTTGC – related products and spread Derivatives
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 QTD % YoY % QoQ
Spread Ethylene - MOPJ
Propylene - MOPJ
HDPE - MOPJ
LLDPE - MOPJ
LDPE - MOPJ
MEG (0.65 Ethylene)
1,237 1,149 1,065 1,247 1,282 1,173 1,143 1,208 1,182 1,093 1,143 1,035 903 1,027 1,025 837 732
230 253 285 342 434 407 402 481 507 496 565 567 532 823 509 588 668
261 364 342 303 345 439 416 420 434 328 388 385 339 377 275 142 305
374 482 428 449 521 585 569 590 620 618 691 802 694 812 774 708 759
297 449 426 455 515 575 570 603 625 627 688 785 687 811 763 713 770
370 455 412 425 498 586 649 718 705 653 688 793 698 837 783 713 773
424 404 285 411 375 351 284 281 245 152 182 246 236 126 394 166 74
820 (20.2) 12.0
693 (15.8) 3.7
308 (18.4) 0.9
742 (8.6) (2.2)
769 (5.2) (0.2)
775 (7.4) 0.2
102 (19.0) 37.7
Naphtha MOPJ
Ethylene SEA
Propylene SEA
HDPE SEA
LLDPE SEA
LDPE SEA
MEG SEA
1,021 894 915 944 961 858 920 946 935 951 913 647 494 563 461 445 344
1,251 1,146 1,200 1,286 1,395 1,265 1,322 1,427 1,441 1,447 1,478 1,214 1,026 1,386 970 1,033 1,012
1,281 1,257 1,257 1,247 1,306 1,297 1,336 1,366 1,369 1,279 1,301 1,032 833 940 736 587 649
1,395 1,376 1,343 1,393 1,482 1,443 1,489 1,536 1,554 1,569 1,604 1,448 1,188 1,375 1,234 1,153 1,103
1,318 1,342 1,341 1,399 1,477 1,433 1,490 1,549 1,560 1,578 1,601 1,431 1,181 1,375 1,224 1,158 1,114
1,391 1,349 1,327 1,369 1,459 1,444 1,569 1,664 1,639 1,605 1,601 1,440 1,192 1,401 1,244 1,158 1,117
411 (26.9) 19.6
1,104 (20.3) 9.1
719 (23.5) 10.8
1,153 (16.1) 4.6
1,180 (14.2) 5.9
1,186 (15.3) 6.2
Source: PTTGC, KT ZMICO Research
Figure 2: Price and spread movement – aromatics chain Unit : US$/ton
PTTGC – related products and spreads
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 QTD % YoY % QoQ
PX Spot Taiwan 1,635 1,443 1,485 1,432 1,284 1,259 1,346 999 827 935 820 793 750
PX FECP 1,562 1,497 1,344 1,535 1,618 1,409 1,440 1,440 1,303 1,256 1,350 1,035 785 924 823 786 718
BZ Spot Korea 1,181 1,107 1,177 1,362 1,379 1,286 1,258 1,283 1,297 1,293 1,301 954 670 804 661 606 574
Condensate Erawan 1,006 927 918 931 948 870 929 937 917 922 872 634 453 533 427 375 303
PX Spot Taiwan ‐ Condensate
687 572 556 494 367 337 474 365 374 403 394 417 448
PX FECP ‐ Condensate 556 570 426 604 670 539 511 502 386 334 479 401 333 391 397 410 415
BZ Spot‐ Condensate 175 180 259 431 431 416 329 346 380 370 430 320 217 271 235 230 272
800 (14.5) 6.6
797 (13.8) 11.0
624 (22.3) 8.8
393 (26.3) 29.7
449 11.4 0.2
404 3.2 (2.7)
231 (14.6) (15.0)
Source: PTTGC, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
Figure 3: PTTGC’s PBV band
Source: Bloomberg, KT ZMICO Research
Figure 4: PTTGC’s valuation comparison with regional peers NAME
Mkt Cap (US$Mn)
PER (x) 16E 17E
PBV (x) 16E 17E
EV/EBITDA (x) 16E 17E
YLD (%) 16E 17E
ROE (%) 16E 17E
PETRONAS CHEMICALS GROUP BHD FORMOSA PETROCHEMICAL CORP FORMOSA PLASTICS CORP NAN YA PLASTICS CORP TAIWAN IRPC PCL PTT GLOBAL CHEMICAL PCL SIAM CEMENT PCL/THE INDORAMA VENTURES PCL THAI OIL PCL THAILAND HANWHA CHEMICAL CORP SAMSUNG SDI CO LTD LG CHEM LTD LOTTE CHEMICAL CORP S. KOREA AVERAGE
12,654.3 25,617.9 15,527.2 14,692.1 2,833.0 7,680.7 16,227.3 4,376.6 3,665.7 3,419.9 6,621.8 15,191.8 7,535.9
18.9 17.9 16.1 13.8 16.7 11.3 11.6 12.3 19.3 8.7 12.1 9.1 20.0 12.5 6.7 12.1 13.6
2.0 3.0 1.6 1.4 2.0 1.2 1.1 2.4 1.9 1.3 1.6 0.8 0.7 1.3 2.5 1.3 1.7
9.2 11.5 23.9 13.4 14.5 7.5 6.6 9.7 10.5 5.9 7.9 8.0 n.a. 5.4 3.6 5.7 9.4
2.8 4.5 4.2 5.0 4.1 4.4 3.9 3.6 1.6 5.2 3.8 0.8 0.9 1.7 1.0 1.1 3.0
10.9 16.3 10.4 10.0 11.9 11.3 9.8 20.3 10.9 15.3 14.3 8.7 2.3 11.0 16.1 9.5 11.9
17.1 18.4 15.0 14.0 16.1 10.6 9.4 11.9 18.0 8.8 11.2 7.9 25.2 11.2 6.8 12.8 13.4
1.9 2.9 1.6 1.4 1.9 1.2 1.0 2.2 1.7 1.2 1.5 0.7 0.7 1.2 2.3 1.2 1.6
8.4 11.6 21.6 13.0 13.6 6.6 5.3 9.3 9.5 5.6 7.1 7.7 8.2 5.0 3.5 6.1 8.9
3.0 4.4 4.5 4.8 4.2 4.7 4.8 3.7 1.8 5.1 4.1 0.9 1.0 1.8 1.0 1.2 3.1
Source: Bloomberg, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
11.1 15.6 10.9 9.6 11.8 11.3 11.4 18.9 9.8 14.0 13.9 9.0 2.8 11.3 13.9 9.3 11.6
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 Minority interests Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt)
2013 552,881 (500,673) 52,208 (12,966) 55,979 16,737 39,242 (6,084) 3,757 36,915 (1,976) (1,322) (833) (77) 433 33,140 7.35 7.35 35,294 7.83 3.40
2014 554,695 (526,068) 28,627 (11,802) 32,767 15,942 16,825 (5,448) 5,240 16,617 (581) 117 (2,239) 177 1,280 15,372 3.41 3.41 16,396 3.64 2.37
2015 403,440 (366,168) 37,272 (11,424) 42,234 16,385 25,849 (5,178) 6,203 26,873 (1,984) (2,289) (2,531) 711 (278) 20,502 4.55 4.55 25,322 5.62 2.80
2016E 374,546 (338,593) 35,953 (9,495) 44,574 18,116 26,458 (3,527) 1,950 24,882 (2,788) 337 0 1,167 (300) 23,299 5.17 5.17 22,961 5.09 2.32
2017E 440,685 (396,458) 44,227 (11,199) 51,607 18,579 33,028 (3,228) 1,945 31,745 (3,913) 0 0 1,292 (300) 28,824 6.39 6.39 28,824 6.39 2.88
2018E 466,906 (422,452) 44,454 (11,350) 52,151 19,047 33,103 (2,772) 1,945 32,276 (4,196) 0 0 1,338 (300) 29,118 6.46 6.46 29,118 6.46 2.90
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 Minority interests Total liab. & shareholder equity
2013 44,384 61,779 50,240 230,934 45,373 432,710 24,438 95,785 187,353 45,088 238,503 6,855 432,710
2014 45,788 43,441 31,577 219,346 41,292 381,443 23,467 89,675 152,993 45,088 224,763 3,687 381,443
2015 47,741 38,274 29,930 220,213 41,387 377,545 9,871 95,976 143,280 45,088 231,552 2,713 377,545
2016E 54,222 31,811 27,830 204,039 42,434 360,335 7,745 70,994 113,443 45,088 243,878 3,013 360,335
2017E 67,400 37,428 32,586 193,185 43,535 374,133 13,377 57,417 108,602 45,088 262,218 3,313 374,134
2018E 69,286 44,772 34,722 181,862 44,650 375,292 5,577 51,841 93,314 45,088 278,365 3,613 375,292
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)
2013 33,140 1,322 16,737 (10,114) 41,085 (14,445)
2014 15,372 (117) 15,942 11,198 42,394 (14,760)
2015 20,502 2,289 16,385 5,450 44,626 (17,632)
2016E 23,299 (337) 18,116 5,054 46,131 (2,659)
2017E 28,824 0 18,579 (8,217) 39,186 (8,443)
2018E 29,118 0 19,047 (12,387) 35,778 (8,443)
(14,445) (16,634) (1,377) (15,337) (8,970) (42,317) (15,678) 26,640 5.91
(14,760) (7,080) (12,317) (15,337) 8,504 (26,230) 1,404 27,634 6.13
(17,632) (7,296) (2,591) (10,691) (4,463) (25,040) 1,953 26,993 5.98
(2,659) (27,108) 2,526 (12,630) 220 (36,992) 6,481 43,473 9.64
(8,443) (7,945) 992 (10,485) (128) (17,565) 13,178 30,744 6.82
(8,443) (13,377) 1,038 (12,971) (139) (25,449) 1,886 27,335 6.06
2013 (2.3) 3.8 (2.5) 9.4 10.1 7.1 6.0 6.4 5.4
2014 0.3 (41.5) (53.6) 5.2 5.9 3.0 2.8 3.0 3.5
2015 (27.3) 28.9 33.4 9.2 10.5 6.4 5.1 6.3 7.4
2016E (7.2) 5.5 13.6 9.6 11.9 7.1 6.2 6.1 11.2
2017E 17.7 15.8 23.7 10.0 11.7 7.5 6.5 6.5 12.3
2018E 6.0 1.1 1.0 9.5 11.2 7.1 6.2 6.2 13.0
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 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investment in the securities of KTB and ZMICO, investor should consider risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, PACE, PLE, TPOLY, BIGC, BJC. KT ZMICO is a co‐underwriter of TPBI.
Anti‐corruption Progress Indicator
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
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 returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to 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 5 of 5
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KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
