Analyst Expects PTTGC Earnings to Rebound Significantly in 2Q, Recomm. BUY at a TP of ฿43

KTB Securities (Thailand) has upgraded the recommendation of PTT Global Chemical Public Company Limited (PTTGC) to “BUY” with a target price at ฿43.00/share.

 

1Q20E earnings to swing to negative territory, likely to hit the year’s low

KTBST organized a group conference call with PTTGC (April 23). First, the company expects a limited impact from the COVID-19 as PTTGC has increased diesel yield, instead of jet fuel earlier-no gasoline production. Second, paraxylene spread will likely remain at a high level of USD260-290/ton in 1Q-2Q20 given demand from downstream producers. Third, low-sulfur fuel oil production remains in focus given a relatively wider margin of USD30/bbl compared to high-sulfur fuel oil. Last, a reduction in crude premium will bode well for 2Q20E earnings.

In 1Q20, KTBST forecasts core profit of Bt1.7bn, while expecting PTTGC to book oil stock/FX losses of Bt5bn and Bt1.5bn, which would result in net loss of Bt5bn. 1Q20E earnings performance is expected to hit the year’s low, and thus 2Q20E earnings to rebound significantly on the back of oil price collapse and a return to normalization in the olefin cracker.

PTTGC’s share price underperformed the SET Index by 24% in a three-month period but it surged significantly 54% in a month. Thus, KTBST, believes the share price priced in the dismal 1Q20E earnings outlook. Adding to positive factors, the COVID-19 impact appears likely less than expected, and the stock’s valuation looks attractive, trading at a discount of -0.25 SD.

KTBST’s target price is Bt43.00, which is pegged to EV/EBITDA of 6.5x (a mean of its 7-yr average). Crude oil price at a low level should provide support to PTTGC’s earnings growth, in terms of lower production cost.