The recovery of the global economy is projected to accelerate in 2022 from nearly a two-year long drought due to the impact of Covid-19 outbreak in 2020.
Despite the ongoing outbreak of the highly contagious omicron variant that takes over the deadly delta strain, most countries are tightening safety measures instead of locking down as preliminary studies showed that the omicron variant is less severe than the delta while contracting omicron could also boost waning immunity.
As people are adapting to the new-normal lifestyle, the rate of oil consumption continues to increase with more mobility on road as well as air travel, which leads to a significant recovery in gross refining margin (GRM) for crude oil.
GRM once contracted more than $5 in May 2020, but has been on a recovering process since then. Currently, the Singapore GRM is at $5.72 per barrel, which is a 236% increase from $1.70 at the beginning of 2021 and a $166% increase from level of $2.15 when the omicron broke out in November 2021.
Thai Oil Public Company Limited (SET: TOP) has been one of the refining stocks that the majority of brokers are positive on the performance this year, saying that TOP should benefit from higher oil demand and higher profit margin from an increase in GRM in accordance to the economic recovery, including tourism, that is gradually recovering to the normal level. More importantly, the company has long-term growth potential from its Clean Fuel Project (CFP) that will expand the production capacity from 275 KBD to 400 KBD with a scheduled commercial of date in 2023. The investment in Chandra Asri (CAP) has been making a return since September 2021, while the final investment decision to expand this project will be made in 2022 and the scheduled commercial operation date has been set for 2026. TOP is also one of the popular picks for foreign investors among refining stocks in the market.
According to the consensus from Refinitiv, brokers estimated TOP’s revenue in 2021 to grow 40% to 347 billion baht and to 368 billion baht in 2022. Oil refining would be the main contributor for 2021 with a 60% growth to 340 billion baht. Meanwhile, net income should rebound from a contraction in 2020 to 9,390 million baht in 2021. The company has 10 buy, 6 hold and 3 sell recommendations with a target price at Bt60.92 per share.
Bangchak Corporation Public Company Limited (SET: BCP) is another refining stock that brokers expected to benefit from rising GRM. Phillip Securities (Thailand) estimated 4Q21 performance (QoQ) to maintain in a positive direction, especially the operation in refining business that has relatively the same level of production output as 3Q21 while GRM was increasing from the easing lockdown and travelling season.
However, due to the government’s measure to hold diesel prices not over Bt30 per liter, BCP should have a downside risk on operating revenue. Meanwhile, the power generation business should be positive from an increase in production at year’s end. Bio-based product business should be positive from higher sales volume and E&P should be weakened due to a drop in oil prices at the end of 2021.
Phillip Securities gave a “BUY” recommendation on SPRC with a target price at Bt31.50 per share.
Late December, Maybank Securities (Thailand) (MST) expected gross refining margin of Star Petroleum Refining Public Company Limited (SET: SPRC) in 2022 to rise to $4.5-5/bbl from the level of $3.4 in 2021, and utilization rate is forecast to rise to 85-90% from 74% in 2021 due to higher gasoline demand. Spread estimates at USD11-12 vs average USD9. It will return to pay a dividend around 5% in 2022. Recommend “BUY” with a target price of Bt11.20 per share.
