InnovestX has issued a tactical OUTPERFORM rating for PTTGC with a 3-month investment horizon, pointing out that the current price is deeply discounted and the worst has passed.
This recommendation comes after a period of significant share price decline of 24% year-to-date, compared to a 15% drop in Thailand’s SET index, which InnovestX attributes to two years of poor product spreads and substantial asset impairments as industry players adapt to a weak market.
Despite anticipating that the demand-supply imbalance in the petrochemical sector will continue to negatively impact product prices and margins, InnovestX projects that PTTGC’s core profit will improve in 2025, primarily driven by its olefins and performance chemicals segments.
InnovestX highlights the current share price as deeply discounted, trading at only 0.3 times Price to Book Value (PBV) and 6 times Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA), suggesting that the worst financial performance is now in the past.
InnovestX maintains its OUTPERFORM rating with a 2025 target price of Bt29, based on a 2025 forecasted PBV of 0.5 times, which is 1.5 standard deviations below the 5-year average. This valuation takes into account potential concerns regarding new US tariffs that could disrupt global commodity trade flows. The target price also represents a 2025F EV/EBITDA of 6.9 times, compared to the 5-year average of 12.6 times.
InnovestX identifies several key catalysts for this positive outlook:
Sentiment brightened by China’s stimulus: InnovestX expects market sentiment to improve due to a series of economic stimulus packages in China, particularly the latest one focused on boosting domestic consumption. This should alleviate pressure from Chinese exports to Southeast Asia, a key market for PTTGC, where Asian markets excluding China accounted for 18% of revenue in 2024, while China contributed 7%.
Stronger operations at Allnex: InnovestX anticipates a strong improvement in earnings from performance chemicals (22% of adjusted EBITDA in 2024) in 2025, following the divestment of loss-making Vencorex in the previous year. The majority of profit from this segment is expected to originate from Allnex, supported by increased demand in Europe and the Asia Pacific region, notably China. PTTGC forecasts mid-single-digit sales volume growth for Allnex in 2025, adding approximately €30 million. The long-term EBITDA target for Allnex is €600 million by 2030, up from €272 million in 2024, with 78% of PTTGC’s total growth capital expenditure for 2025-2029 allocated to Allnex expansion.
Better core profit in 2025F: InnovestX projects that the 2025 core profit will benefit from an EBITDA recovery in the olefins segment due to a higher proportion of ethane feedstock at 38% (compared to 33% in 2024) and reduced losses from the joint venture in intermediate products, following a loss exceeding Bt9.5 billion in 2024 which included impairment and provisions related to the withdrawal from PTTAC. PTTGC is expected to realise benefits of Bt4.6 billion from its portfolio changes, including dissolving PTTAC and divesting Vencorex. Furthermore, efficiency improvement initiatives, cost reduction efforts, and enhanced competitiveness are expected to help PTTGC navigate the challenging industry conditions in 2025.
Secure long-term cost competitiveness: InnovestX notes that feedstock cost competitiveness will be strengthened in the long term through a 15-year ethane supply agreement with a US company (Enterprise), requiring minimal additional investment of US$133 million, aligning with PTTGC’s asset-light strategy. This agreement will increase PTTGC’s ethane feedstock by 400 kilotonnes per annum from 2029 onwards, with management anticipating an annual benefit of US$40 million, implying a payback period of less than four years. This additional ethane supply will help bridge the gap between the domestic supply of 1.9 million tonnes per annum from PTT and PTTGC’s maximum capacity of 2.5 million tonnes per annum.InnovestX believes that 2024 marked the low point for PTTGC’s earnings. The current 2025 forecasted valuation of 5.9 times EV/EBITDA and 0.3 times PBV is seen as compelling when compared to the regional averages of 8.9 times and 0.7 times, respectively.
