Company Overview
PTT Public Company Limited is a Thailand-based company, which is engaged in the operation of its petroleum business. The Company is organized into business groups based on types of products and services: upstream petroleum and natural gas business, and downstream petroleum business. The upstream petroleum and natural gas business group includes petroleum exploration and production business, natural gas business, and coal business. The downstream petroleum business group includes oil business, international trading business, and petrochemical and refining business, and new business and infrastructure group. It conducts a petroleum exploration and production business both domestically and overseas. Its domestic projects are located in the Gulf of Thailand, while overseas projects are located in Southeast Asia, Australia, America and Africa. It conducts the natural gas business, including procurement, natural gas pipeline transmission, distribution and natural gas separation.
Investment Overview
EV business, EEC are long-term catalysts. PTT’s partnership with Foxconn – one of the world’s largest chip producers – should open up ample opportunities for the company in the electric vehicle (EV) space, such as the development of various EV platforms. The Thai Government is promoting EVs with the aim of making the country an EV manufacturing hub in ASEAN. The Eastern Economic Corridor (EEC) also provides growth opportunities for PTT and its subsidiaries.
High regulatory risk on the cards. To help alleviate the high electricity price, the government is in discussions with related parties to adopt a single pool gas structure. Such a structure will adversely affect business performance for gas separation plant units as the cost of natural gas feedstock will rise. Thus, this uncertainty poses a high regulatory risk to PTT. Currently, the government and related parties are reviewing appropriate implementation processes.
HDPE/PP/crude prices are key determinants of financial and share price performance. PTT’s core business is driven by its upstream (crude oil, natural gas, and LNG), refinery (market GRM), and chemical (HDPE/PP prices) businesses. Of these, we believe the crude oil price, as well as government action on national policy, will have the most impact on share price performance.
Maintain BUY. We maintain a BUY rating with FY24F TP of THB40, based on SOTP valuation with a WACC of 9.93%. Our rating is supported by i) share price having baked in the regulation risk from new government policies on energy prices such as Single Pooled Gas price and the potential second shortfall penalty of THB4.70bn to be paid in 2H24F; ii) decent dividend yield of c.5%; and iii) PTT having a lower risk profile relative to other energy companies, as it is a diversified and defensive energy company and its consolidated EBITDA is made up of proportional contributions from its upstream, downstream, and gas businesses
Risks
Volatile oil prices pose key risk to future earnings. PTT’s earnings are also exposed to potential inventory gains/losses at its oil refining and petrochemical associates from large swings in oil prices.
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