A Ray of Light at the End of the Tunnel for TOP and PTTGC

As the earnings season draws near, it is inevitable to say that refinery and petrochemical stocks like Thai Oil Public Company Limited (TOP) and PTT Global Chemical Public Company Limited (PTTGC) will be struggling with their earnings in 1Q20.

 

The first reason is a “Stock Loss” from lower crude oil prices. In late 2019, Dubai crude was around $40-$45 per barre, while the price fell to $20-$25 per barrel at the end of the first quarter in 2020. Analysts estimated that TOP will have a stock loss of 13,000 million baht, while PTTGC will have a stock loss of 7,800 million baht.

Secondly, the loss from foreign exchange will be another major factor that pressures both TOP and PTTGC’s profit in the first quarter. Thai baht was one of the strongest currencies in the emerging markets late last year, traded around 30 Thai baht per 1 US dollar. However, Thai baht depreciated to 32 Thai baht per 1 US dollar at the end of 1Q.

The depreciated Thai baht had made the cost for importing crude oil higher for TOP and PTTGC. Analysts estimated that TOP will record a deficit of 2,450 million baht, while PTTGC will record a loss of 1,900 million baht from foreign exchange in 1Q.

To make things even worse, the exports were paralyze due to lower demand from the outbreak of coronavirus.

Lastly, the lower profit from gross refinery margin (GRM) due to lower demand as countries worldwide are on a lockdown and most businesses are unable to operate, especially factories, to prevent the spread of coronavirus.

The above mentioned are the major factors that lead to a conclusion from analysts that the earnings of TOP and PTTGC will not be as good as they should.

 

In the first quarter of 2020, analysts forecasted that TOP will record a net loss of 15,700 million baht, compared to a net profit of 4,400 million baht in the same period of last year. Meanwhile, PTTGC will also face a net loss at 7,591 million baht, compared to a net profit of 6,440 million baht in the same period of last year.

The share prices of TOP and PTTGC also declined almost 40% in three months, reflecting negativity forecasted from their 1Q earnings.

 

Nevertheless, it is possible that the share prices of TOP and PTTGC will have a short-term drop after announcing their earnings as the share prices could have priced in all negative factors for the past 3-4 months. Then, after a drop, a surge could happen in hopes of a turnaround in 2Q.