THAILAND SET

Thai Oil Beat Earnings Estimate Despite Sagging Gross Refining Margin

Witawat (Ed) Wijaranakula, Ph.D.
Wed Aug 10, 2016

Thai Oil Public Company Limited (SET:TOP), 49.1% stake owned by PTT Public Company Limited (SET:PTT), as of February 29, 2016, is a Thailand-based company engaged in the business of oil refining and distributions and is the refinery flagship of PTT. Thai Oil operates business segments, including oil refinery, petrochemical, lube base oil, solvent and chemical products, power generation, petrochemical, oil and chemical products transportation services, ethanol manufacturing, and others including energy consulting service. 

TOP oil refinery, which is the largest in Thailand, can produce a variety of products including petroleum, petrochemical products and lube base oil, has a capacity of 275,000 barrels per day (bpd) in Chonburi. Thai Oil is considering expanding its capacity to 400,000 bpd and will make a decision on whether or not to proceed in the second quarter of 2017, according to Reuters.

Some of TOP’s direct and indirect subsidiaries include Thai Paraxylene Co., Ltd, Thaioil Marine Co., Ltd, Thaioil Energy Services Co., Ltd. Thaioil Ethanol Co., Ltd, Thaioil Power Co., Ltd, TOP SPP Co., Ltd., and Sak Chaisidhi Co., Ltd.

Thai Oil said on August 8 that its second-quarter 2016 revenues were 72.37 billion baht, exceeding the 65.66 billion baht consensus estimate by 4 analysts, according to the Financial Times. The company posted second-quarter 2016 earnings of 3.82 baht per share, exceeding the 3.01 baht per share consensus estimate of two analysts.

In a press release, Thai Oil said its gross refining margin (GRM) in the second-quarter 2016 was US$4.40 per barrel, a US$1.70 per barrel drop from a quarter ago, and a US$3.00 per barrel decline from a year ago. GRM is the difference between the total value of petroleum products coming out of an oil refinery (output) and the price of crude oil. TOP also said that a better throughput and a recorded inventory gain, after an increase in global crude oil prices during the second-quarter, helped improve its EBITDA and net profits.

TOP reported a dividend of 2.70 baht a share in 2015, which represents a 132.76% increase from 2014. The 23 analysts covering the company expect dividends of 3.36 baht a share for the upcoming fiscal year, representing a decrease of 24.59%. 

The shares of TOP are trading in an ascending wedge chart pattern and bumping into a muti-year trendline resistance at the 70 baht level. The stock may break out along with the energy sector, but still faces resistance until it can break the 77 baht level. There are supports at the 56-60 baht level, if TOP shares pull back. Overall, a long-term descending trend continues. 

As of August 9, 2016, the consensus forecast amongst 23 investment analysts polled by the Financial Times advises investors that the company will outperform the market, with the median 12-month price target of 74 baht per share.

Disclosure: No position in TOP and no recommendation.

THAILAND SET INVESTMENT RESEARCH

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