Krungsri Securities (KSS) has raised its recommendation for PTT Global Chemical Public Company Limited (PTTGC) from “HOLD” to “BUY” and raised the target price to ฿50.00/share.
1Q20 Highlights: 1Q20 loss came out at Bt8.8bn vs. Bt374m profit in 4Q19
Key drags were stock loss of Bt8.9bn and FX loss of Bt2.2bn compared to Bt235m stock gain and Bt440m FX gain in 4Q19. Excluding extraordinary items (stock loss, FX loss, hedging gain), operating profit was Bt1.1bn, vs. Bt1.0bn loss in 4Q19.
Market GRM was US$3.5, down from US$4.7 in 4Q19, due to lower crack spreads of jet fuel, diesel and gasoline Utilization for refinery was healthy at 103%, up from 51% in 4Q19 due to 52-day refinery shutdown for maintenance in that quarter. Aromatics show big improvement with +2% qoq for PX spread to US$261/t and +31% qoq for BZ spread to US$164/t and higher utilization at 97% from 87% in 4Q19. This led the product to feed spread to US$163/t from US$91/t in 4Q19. Olefins and derivative business unit was weaker qoq with lower product prices (PE, PP) and declining utilization to 81% for crackers and 89% for polymer compared to 99% and 100% in 4Q19.
As a result, EBITDA contribution from this unit dropped 29% qoq to Bt1.8bn with EBITDA margin at 9% vs 10% in 4Q19. PTTGC also booked Bt1.2bn hedging gain in 1Q20.
Guidance: No major shutdown, improving GRM, and lower stock loss in 2Q20
PTTGC’s operations should improve substantially in 2Q20 as they will not have any major shutdown compared to shutdown for crackers (I4-1 and I4-2 with total 1.2m ton capacity for 39 days and 35 days and oleflex cracker for 37 days) in 1Q20. GRM should improve as demand is recovering from lockdown easing. Management guided healthy run rate at 100% for refinery, aromatics and polymers in 2Q20. Aromatics should remain strong going into 2H20 while olefins and derivative business unit should be flat.
Recommendation: Upgrade to BUY, raised TP to Bt50/share
PTTGC deserves to be re-rated given rising oil prices. KSS had cut PBV valuation to 0.5x as the security company was concerned about investment in US gas cracker, which was scheduled for final investment decision in mid-2020. PTTGC now puts this project under review until the end 2020. KSS raised utilization rate for aromatics to 100%/95% in FY20-21F from 85%/85%, resulting in an increase in earnings by 26%/16%.
KSS raised TP to Bt50/share (from Bt32/share), pegged to 0.8x FY20F PBV, on par with peers. KSS upgraded the stock to BUY as PTTGC’s earnings will gain pace in following quarters.