KGI Securities reiterated a rating of Outperform on PTT Public Company Limited (PTT) with a 2021 target price of ฿48.00/share, estimating 4Q20 earnings of 12.7 billion baht (-27% YoY, -10% QoQ). The drop YoY would be mainly due to i) lower Gas BU contribution from natural gas (NG) sales volume tumbling 10% YoY, pressured by the COVID-19 outbreak and ii) PTTEP’s significantly softer earnings from crude price falling 28% YoY.
Meanwhile the slight decline QoQ would be mainly due to i) typically higher SG&A expenses in the last quarter of each year, and ii) lower Oil BU contribution from oil marketing margin declining 14% QoQ. In spite of the projection of a lower 4Q20 earnings performance, KGI believed the share price will be supported by the listing of PTT Oil and Retail Business Company Limited (OR) on the SET.
PTT’s oil marketing margin is expected to decline to ฿1.04/liter in 4Q20, given a higher crude price and fixed oil selling price to reward its retail customers during New Year. For Gas BU, KGI expected NG sales volume to soften 4% QoQ to 4,255mmscfd after a new round of local COVID-19 infections starting from mid-December 2020. However, GSP sales volume is estimated to improve 3% QoQ to 1,735kton from no 46-day planned shutdown on the GSP plant like in 3Q20. Meanwhile, combined earnings from PTT’s five listed subsidiaries are expected to grow QoQ in 4Q20 thanks to better contributions from PTTGC, TOP and IRPC despite softer contributions from PTTEP and GPSC.
However, there is possibly higher LNG import next year from Erawan projects delay on site access. On February 4, the Director-General of Thailand’s Mineral Fuels Department revealed that there is a risk of delay on site access to the Erawan field. Chevron (Thailand) has entered the arbitration process to file a lawsuit against the Thai government regarding Erawans decommissioning. Talks between Chevron and the government did not progress to allow PTTEP to install equipment and facilities on the project site by mid-2021.
The delay in accessing the site will affect PTTEP’s sales volume in 2022, while the project under new PSC is targeted to commence in April 2022. However, PTT would benefit from higher LNG import to compensate for the lower-than-planned gas production in the Erawan project next year.