CGS-CIMB continues to recommend the “BUY” call on PTT Pcl. (SET: PTT) with a target price of THB35.00 after the company reported a healthy net profit for the first quarter plus the potential of a lower cost for gas, which could result in higher gas EBITDA in the second quarter.
In 1Q23, PTT reported a net profit of THB27,855 million, an increase of THB3,063 million or 12.4% from the 1Q22 at THB24,792 million. The net profit of PTT in the first quarter was higher than the consensus from Refinitiv by 5.71% and beating Bloomberg consensus estimates by 16%.
Despite the decline in EBITDA, PTT still reported higher performance in the quarter. This was resulted from lower loss on derivatives and higher gain on foreign exchange rate in 1Q23 in spite of higher finance costs and corporate income taxes.
PTT also recognized loss of non-recurring items (the company’s portion) after tax approximately THB100 million mainly from non-cash accounting transactions at the end of concession of Bongkot Project of PTT Exploration and Production Public Company Limited (PTTEP) offset with the discount from production shortfall (Shortfall) of PTT. Meanwhile, in 1Q22 there were gain recognition of non-recurring items approximately THB900 million mainly from Shortfall of PTT and gain on Ichinoseki Solar Power 1 GK divestment of GPSC.
According to a note published by CGS-CIMB on Thursday, PTT’s gas business is expected to improve in the second quarter (reduced gas costs, the possibility of importing more cargoes, spot LNG at USD11 compared to USD17-18 in the first quarter; margin expansion is therefore anticipated). But as the THB6 billion base has already reached the upper band, trade activity should be limited. The drag should come from refineries. Expect flat QoQ or softer QoQ.
Due to higher demand for gas (electricity producers transition back from diesel) and low local gas output, PTT forecast that Thailand’s import LNG (spot basis) could reach 25 cargoes in 2Q23, up from 20 cargoes in 1Q23 and two in 4Q22. However, the price of Asian Japan-Korea Marker LNG fell from US$18/mmbtu in 1Q23 to US$11/mmbtu in May 2023. The brokerage expects the pool gas price to fall sequentially in 2Q23 due to this and the lower gulf gas cost, resulting in a larger EBITDA margin for PTT’s S&M operations. Seasonal gas demand for power production should also lead to T/M EBITDA improvement in 2Q23.
PTT currently trades at 0.77x FY23F P/BV, at a 15-year low, expect FY23-24F dividend yield of 3.85-4.33%, said CGS-CIMB.
