Analyst Expects a Rebound in SPRC’s Revenue in 2Q20, Giving a TP at ฿10

KGI Securities expects Star Petroleum Refining Public Company Limited (SPRC) to post a significantly higher earnings in 2Q20, maintaining a rating of Outperform with a target price at ฿10.00/share, based on 5.5x EV/EBITDA. 

 

Forecast 2Q20F earnings to soar YoY and QoQ

KGI forecasted the recovery in earnings from net losses of ฿599 million in 2Q19 and ฿8.3 billion in 1Q20 would be benefit from a better net stock gains and base GRM, estimating SPRC to book a net stock gain (including reversion in NRV loss) of ฿1.5 billion for the quarter, up from net stock losses of ฿122 million in 2Q19 and ฿9.4 billion in 1Q20 after Dubai crude rose from US$34/bbl in March to US$41/bbl in June. SPRC remains as one of KGI’s Energy top picks in the short-term. 

 

Note, Thailand’s base GRMs in 3Q20 will be pressured by higher normalized crude premium costs while better refinery spreads are in question as they would depend on the second wave of the COVID-19 outbreak.

  

KGI expected SPRC to report a 2Q20 net profit of ฿1.2 billion, recovering YoY and QoQ from 2Q19 and 1Q20. The jump in earnings would be thanks to better net stock gains and base GRM. 

 

In addition, SPRC’s base GRM is expected to improve 63% YoY and 228% QoQ to US$4.2/bbl since Murban crude premium costs declined significantly QoQ from US$2.4/bbl to -US$4.7/bbl due to the crude price war although almost all of the refinery spreads declined QoQ from the impact of the COVID-19 pandemic. However, KGI expected SPRC’s crude run to soften 7% QoQ to 142KBD, given the impact of the country’s lockdown during late March – mid May.

 

Expect partial refund of US$5-6mn in 2H20 after being attacked via email

In 4Q19, SPRC suffered damages from incorrect payments to accounts in the amount of US$22.4 million as a result of an email transaction attack. However, the company expected to receive a partial refund of approximately 25% (or US$5-6mn) by 2H20. In addition, the firm strengthened its existing payment control process to ensure that all payment transactions are paid properly, such as higher management authority for final fund release. SPRC also plans to upgrade its cybersecurity and increase employees’ awareness and knowledge about phishing emails. Although we have a positive view on the recovery of US$5-6 million (or accounting for only ฿0.05/share to the share price), KGI had not included the amount into our full-year earnings forecast yet as it has little impact.

 

Risks

Volatility in crude price and GRM.