PTTGC Rebounds 7%, Analyst Is Positive over a ฿148Bn Allnex Deal, Giving a TP of ฿85

The share price of PTT Global Chemical Public Company Limited (PTTGC) rose ฿3.75/share or 6.85% to ฿58.50/share as of 11:56 local time in Thailand, with a trading value of 2,932 million baht.

PTTGC rebounded from a 6.41% plummet yesterday (July 12). The share price closed at ฿54.75/share, dropping by ฿3.75/share.

Maybank Kim Eng (Thailand) (MBKET) is positive on PTTGC’s strategy to build its specialty chemical segment as competition for commodity grades intensifies through the acquisition of Allnex Holdings Gmbh in the amount of 148 billion baht. MBKET maintains a “BUY” recommendation with a target price of 85 baht.

The analyst projects adjusted FY21 EV/EBITDA multiple is 9.8x for the acquisition. This is in line with Covestro’s acquisition of Royal DSM’s resins/functional material business at 10.3x in 2020. Allnex’s 1Q21 LTM EBITDA margin is at 17.3% and should generate annual EBITDA of 12-15 billion baht. ROE is 13.4%. This will be an earnings accretive acquisition, raising FY22E EPS by 15-20%. Specialty chemicals demand higher margins and have lower variability vs commodity grade (volatile EBITDA %, dropping below <10% ascrude fell < USD40/bbl, back to 15%). Unlike specialty chemicals, commodity grade fundamentals are  under pressure as significant capacity comes online. PTTGC aims to raise specialty chemical EBITDA contribution to 25% by 2030.

PTTGC has already notified SET it does not need to raise capital for this acquisition. PTTGC’s net D/E will rise from 0.33x to 0.7x for FY21. Total cash is 125 billion baht = Cash, cash equivalent (100 billion baht) + cash from GPSC stake sale (25 billion baht) in 2Q21. PTTGC will take a loan of 25 billion baht, well within the limit of its agreement with PTT (not exceeding 73.9 billion baht). FID decision on US shale project (end of FY21/1Q22) remains a source of uncertainty and maybe an overhang. Assuming a USD8 billion project (50/50 Joint Venture), it would cost PTTGC USD4 billion, pushing its net D/E to 1.08x. Following the sizable Allnex M&A, MBKET thinks management can afford to be patient on this project and more economically selective (always good for shareholders).