Target price : Bt13.85
Recommendation : BUY
Closing Price (4 May 09) : Bt11.70
1Q09 profit to be 65.3% better than in the same period of last year
- Sales of fuel oil at a premium price and hedging gains should lead oil refiner BCP to deliver stellar profit growth in 1Q09.
- The Product Quality Improvement (PQI) program for a fuel-oil cracking
facility started commercial operation on Apr 7, 2009.
- For the whole of 2009, we expect the company to swing to a net profit of Bt2,577m from a year-ago loss.
- We maintain a BUY stance on BCP with a 2009 price target of Bt13.85/share.
Stellar earnings growth expected in 1Q09 helped by sales of fuel oil at a premium price and hedging gains
We expect BCP, one of Thailand's leading oil refiners to deliver stellar earnings growth of 65.3% YoY in 1Q09 and turn around from a loss in the prior quarter. We estimate BCP's 1Q09 net profit to be about Bt1,439m, or Bt1.29 a share. On a YoY basis, the impressive profit growth performance would contribute to the fact that: (i) the refinery would run at full rates in the Jan-Mar quarter of 2009, reflecting plant shutdowns in the same period of last year, and refining output is therefore forecast to rise 33.7% to 81kbd; (ii) fuel-Dubai crack spreads would be positive as fuel oil are sold at a premium price and fuel oil prices have also climbed upwards: In 1Q09, fuel oil-Dubai crack spreads are forecast to shrink by US$7/barrel against a year-ago contraction of US$16.8/barrel. GRM would therefore be high. We estimate market GRM, excluding oil stock gain/loss, to be about US$6/barrel in 1Q09, up 16.5% YoY but down 5.7% QoQ; and (iii) hedging gains are forecast to be about US$4/barrel.
PQI program started commercial operation on Apr 7, 2009
The Product Quality Improvement (PQI) program for a fuel-oil cracking facility passed major provision accuracy (MPA) test on Apr 27, 2009 under the terms and production efficiency requirements with the bank, allowing the company to pull out its collateral placed with the bank. Currently, BCP has not yet conducted a performance test of the machinery with supplier. The performance test is expected to be made in late May 2009, but the trial run at 95 kbd however shows that oil output meets specifications. The PQI program started commercial production on Apr 7, 2009, a month behind an original schedule for late Feb 2009.
Expecting a return to a net profit of Bt2,577m this year from a year-ago loss
We expect BCP to swing to a net profit of Bt2,577m, or Bt2.30 a share this year from a year-ago loss. Our forecast is based on a GRM assumption of US$6/barrel, which is higher than an average forecast of US$4-5/barrel for other refiners, given the hedging of diesel and fuel oil over Dubai crude oil for 40% of sales at an average US$20/barrel.
BUY recommendation with 2009 price target of Bt13.85/share
First-quarter net profit forecast accounts for up to 55.8% of our full-year estimate. However, the profit outlook in the following quarters of the year may not be as high as in 1Q09, as the portion of fuel oil to be sold at a premium price would be reduced to 50% from 100% in 1Q09, but the decline would be somewhat offset by a rise in portion of higher-margin diesel production to 51% from 15%. In view of the stellar earnings performance, we believe BCP would likely distribute an interim dividend expected to be in a range of Bt0.80-Bt1/share. We maintain a BUY stance on BCP. Our 2009 price target of Bt13.85/share also offers an 18.4% upside from the latest closing price.
By Phillip Securities (Thailand) Plc. on May 6, 2009
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