Erawan-Bongkot

Maybank Kim Eng has published an analysis of PTT Exploration and Production Public Company Limited (PTTEP) after reviewing PTTEP’s 3Q18 consolidated financial statement and recommended “Trading Buy” (Speculative Buy), given 12 months target price at ฿160.00/share (+16%). 3Q18 Earnings Results The 3Q18 net profit was ฿10.4bln, a turnover from a net loss of ฿8.7bln in 3Q17 due to Mariana Oil Sands Project impairment loss of ฿18.4bln. (+190% QoQ). Excluding net extra items of +฿758 million (including foreign exchange gain of ฿2.2bln., hedging loss of ฿296.7 million and Montara divestment loss of ฿1.22bln.) the normalised profit was ฿9.6bln (+30.5% YoY, -10.3% QoQ), lower than the market's average forecast of ฿12.4bln (Maybank estimates at ฿11.6bln) due to lower ASP, with higher than expected unit cost. A rise YoY in normalized profit was driven by average selling price (ASP) rising to ฿1.57bln./BOE (+38.8% YoY, +1.6% QoQ). A drop QoQ was a result of a 4.7% QoQ increase in unit cost to ฿1.08/BOE (+15.8% YoY) due to greater depreciation from a higher stake in Bongkot field. Sales volume increased 0.7% QoQ to 305KBOED due to higher sales volume in the Bongkot project. 4Q18 Earnings to Recover QoQ 4Q18 normalized profit should increase QoQ, thanks to a 10% QoQ rise in sales volume and higher ASP due to gas price expected to rise 11% QoQ. Meanwhile, unit cost tends to decline QoQ due to lower planned maintenance and exploration activity. The interest expenses are likely to decrease from debt repayment. 9M18 earnings were ฿30bln., representing 74.3% of our estimate. Maybank maintains its forecast unchanged at ฿40bln. Recommendation Even though the lower than expected 3Q18 earnings may be a factor pressuring stock price in a short term, Maybank looks at it as an opportunity to accumulate the stock on anticipation of strong earnings recovery in 4Q18. That includes positive catalyst for the renewal of auction for Erawan-Bongkot projects. Maybank continues to recommend TRADING BUY with a target price (Discount Cash Flow) of ฿160.00/share. Risks There are some risks that could affect PTTEP’s price that Maybank points out for investors to monitor carefully. More oil price fluctuation than expected Unit cost control Extra items from foreign exchange fluctuation Delays to concession renewals