• 
• 

Published on April 2, 2008

The company lost its shine when its stock price fell by 20 per cent, underperforming the SET Index and the energy sector on anxiety over the narrowing gross refining margin (GRM).

"We believe the margin will move above $11 per barrel [the highest in two years] in the second quarter on concerns that commercial operations of new refining capacity of 0.58 million barrels per day at Reliance (India) will be delayed," Kim Eng Securities (Thailand) said in a note.

"We also estimate the demand for petroleum, diesel and jet fuel will rise in the second and third quarters, partly due to the Olympic Games taking place in China in August.

"Therefore, we estimate Thai Oil's GRM will continue to rise until the third quarter and the share price will recover as well. We believe any negative factors are already reflected in the share price."

With the promising GRM outlook and an expected high dividend yield in the sector along with 15-per-cent earnings growth, Kim Eng recommends Thai Oil as a "buy" with a fair value of Bt99.50.

Thai Oil is the country's largest single-site oil refiner with a maximum capacity of 275,000 barrels a day after its capacity expansion last year. It has also diversified into the aromatics and petrochemicals sectors and power generation through its subsidiaries and affiliates.

The brokerage estimates the oil refiner will earn Bt20.3 billion or Bt9.95 per share this year in normalised earnings, an increase of 15 per cent year on year on the back of capacity expansion last year.

Thai Paraxylene, its wholly owned subsidiary, resumed operations last month after shutting down for plant alterations to increase its production capacity to 900,000 tonnes a year.

According to the Securities Analysts Association, 20 research houses including Kim Eng recommended investors to buy up Thai Oil's stock with a target price range of Bt80-Bt112 per share.

Kiatnakin Securities - one of the brokerages recommending a "buy" - said in a report released yesterday that the decline in GRM would not be as sharp as forecast earlier due to the postponement of new refinery plants in the Middle East.

"We forecast the average GRM

in 2008 would stand at $6.50 per barrel. Even though the overall GRM will fall from last year and petrochemical spread is under pressure from the rising production costs, Thai Oil would not hurt much due to its production flexibility. The higher production capacity (of Thai Oil) and Thai Paraxy-lene would offset impact from the downturn cycle," the broker said.

Kiatnakin Securities predicts Thai Oil's net profit in 2008 will rise by 16 per cent to Bt22.24 billion.

"We maintain GRM estimate in 2008 at $6.50 per barrel while the average GRM over the next five years stands at $5.7 a barrel," the brokerage said.

Thai Oil is expected to pay an annual dividend of Bt4.25 per share, it added.

The brokerage predicts Thai Oil will post a net profit of Bt4.69 billion for the first quarter, up 2 per cent quarter on quarter but down 19 per cent year on year.

The oil-refining industry's main risk is that GRM might fall after 1.6 million barrels a day of refined oil capacity come on stream this year and another 1.2 million barrels a day in 2009, while demand in 2008 is expected to grow around 700,000-800,000 barrels a day.

United Securities is less optimistic than Kim Eng Securities (Thailand) and Kiatnakin Securi-ties by giving a "trading buy" recommendation on Thai Oil's stock, with a 2008 target price of Bt97. The brokerage predicts Thai Oil's first-quarter net profit will rise 5 per cent year on year to Bt4.84 billion.

Thai Oil's average GRM in the first quarter stayed at the higher level of $9.50 per barrel, including a stock gain, it said.

The planned listing of Esso (Thailand) and Star Petroleum Refining this year will boost Thai Oil's stock price, the brokerage added.

Oranan Paweewun

The Nation