FSSIA

Finansia Syrus Securities (FSS) estimated a 30-40% downside to FY21E net profit or 500-800 million baht on Tipco Asphalt Public Company Limited (TASCO) over the shutdown of its crude oil procurement from Venezuela if the company secure alternative crudes for its refinery. FSS pointed out negative and positive factors from the conference call as follows; (Negative) TASCO needs to stop purchasing heavy crude from Venezuela starting Dec-20. (Negative) Impact is estimated to be 0.8mt, the asphalt produced from KBC refinery plant in Malaysia, out of 2mtpa sales volume. (Negative) 0.5mtpa sales volume in Thailand is unlikely to be impacted even normally 0.3mtpa is procured from KBC to Thailand market during the high season period. (Neutral) 0.5mtpa trading volume for the export market will have no impact given they are all procured from other refiners. (Neutral) There are committed contract sales volume until Dec-20 and hence management expects limited or no impact to the contact sales. (Neutral) Chinese refiners are likely to increase its asphalt production to compensate for the 1mtpa asphalt production loss from TASCO’s refinery plant given their abilities and capacities. Hence the asphalt-Brent margin is expected to remain high due to the 1mtpa lower supply from TASCO. (Positive) 2020 sales volumes in Thailand, Vietnam, and Cambodia, are projected to be very strong, according to management, accounting for 40% of sales volume and 60-70% of total net profits based on our estimates. In the conference call, TASCO proposed mitigation plans as follows; 1) Maximize crude purchase from Venezuela until November before TASCO needs to stop purchasing crude from Venezuela, potentially prolonging the refinery run to at least 1Q21. 2) Seek alternative crude, usable up to 13 types, to be blended with Venezuela super-heavy crude, to prolong the refinery run period. However, those alternative crudes are a) highly demanded than the Venezuela crude given no sanctions and less sour crudes; b) higher price than Venezuela crude and lower yields. Note that only 2 types of crudes that KBC refinery plant is able to run without blending with Venezuela crude. The resulting asphalt yield from non-Venezuela crudes ranges from 50-60% vs 71% from Venezuela crude. KBC refinery runs for crude with API up to 16. 3) Raise international trading sales volume by purchasing from other refiners 4) Improve its asphalt retail business in the existing 8 countries (Philippines, Cambodia, Laos, Vietnam, Indonesia, Thailand, China, and Singapore) by purchasing asphalts from other producers. We estimate the retail gross margin is 3-5% pts higher than the wholesales gross margin. 5) Increase its premium asphalt sales in Thailand and other markets 6) Strengthen its infrastructure unit which now has secured THB8.6b backlog. 7) Cancel the floating storage contract after the expiration in Feb-21. Source: FSSIA