Maybank Expects Solid Growth for PTTEP with Synergies between G1-G2, Recomm. BUY at ฿110

Maybank Expects Solid Long-Term Growth for PTT Exploration and Production Public Company Limited (PTTEP) with a target price at ฿110.00/share, citing solid financial health and the rising market share after taking Erawan concession from Chevron.

 

Maybank estimated PTTEP’s 3Q20E to come at THB5.2b, +21% QoQ and -52% YoY. 9M20E will come in at 81% of its full year forecast but see low risk of overshoot as gas ASP will bottom in 4Q20. 3Q20 sales volume of 336kKBOED is 1% below guidance but up 3% QoQ. For FY20E, PTTEP maintains guidance of 355KBOED but sees 1-2% downside 1.) lower 4Q20 nomination by PTT 2.) delays in first gas from Block H-Malaysia (45KBOED). 3Q20 Dubai rose 40% to USD43/bbl while gas was USD6.2/mmbtu (better than guidance of USD6.1/mmbtu).

The estimated average ASP is at USD38.7, +11% QoQ. Meanwhile, 3Q20 unit cost is expected to rise to USD31/BOE vs USD30.2/BOE (2Q20) on royalty and operating expense (activity delayed in 2Q20).

Maybank maintained USD30/BOE unit cost for the year. Non-core items include a USD30m gain on tax reversal, forward contract, and oil hedging. PTTEP does not expect to see any future impairments at crude levels of USD40/bbl.

 

Nevertheless, Maybank cut 2021E earnings by 16% to reflect downward revision on crude assumptions from USD55/bbl to USD50/bbl as demand recovery has been weaker than expected and the second wave of Covid19 injects uncertainty.

Maybank cut gas ASP (lags crude) from USD5.8/mmbtu to USD5.5/mmbtu. The security company’s assumptions are relatively positive as it had not given up complete hope on a recovery (IEA estimates demand is 92% of pre-pandemic levels and inventory drawdowns have been sharp). Key risk to the assumption is OPEC+ easing output cut to 5.7mbpd (from 7.7mbpd) starting January 2021 as the security company believed the market is not ready to absorb extra barrels yet.

 

According to the statement, PTTEP expected to lower its unit cost from USD30/BOE to USD25/BOE by 2023 on realization of capital and operational synergies between G1 and G2 gas blocks (next to each other), which account for 40% of Thailand’s gas supply. Chevron is the current operator of G1, but the block will be transferred to PTTEP in 2022 (10-year concession) under the PSC agreement.

 

Maybank stated that it had yet to input these figures into its model as these are preliminary estimates by PTTEPs technical team.