The tighter oil market outlook for 2021-22 augers well for both crude prices and PTTEP’s earnings, prompting us to upgrade our profit forecasts. Despite its recent price rally, the stock has further to run, we believe, given the 90% correlation between the share price and crude price movements. Hence, we have upgraded our call from HOLD to BUY with a new YE21 DCF-derived target price of Bt130.
Greater sales volume to support 4Q20 core earnings stable QoQ
Our model indicates 4Q20 NPAT of Bt6,846m, down by 41% YoY and 5% QoQ. Stripping out assumed extra items, core earnings would be Bt6,201m, down 46% YoY but up 2% QoQ. The key factors behind the expected YoY core profit dive are: 1) lower petroleum sales volume and 2) a lower average petroleum sales price. Nevertheless, a lower unit cost should mitigate the core profit slippage. The modeled QoQ profit growth is due to greater QoQ petroleum sales volume.
Petroleum sales volume is assumed at 377k boe/d for 4Q20, down 5% YoY (COVID-19 effects) but up 9% QoQ (higher offtaking by PTT). Our ASP assumption is US$37.3/boe, down by 23% YoY (lower sales prices for both liquids and gas—some gas sales contract price formulas are benchmarked to the price of high-sulphur fuel oil, which has fallen) and 4% QoQ (a lower gas sales price). We assume PTTEP’s unit cost at $30.10/boe, down 11% YoY (lower OPEX, exploration, royalty, and SG&A expenses) but up 2% QoQ (higher QoQ royalty expenses and seasonally heavier SG&A expenses).