PTT Exploration and Production PCL (PTTEP)

Results Preview
10 Oct 2014
PTT Exploration and Production PCL (PTTEP)
Stock Flash: PTTEP’s 3Q14 results preview: Earnings to decrease QoQ and YoY.

We expect PTTEP’s 3Q14 net profit to fall 33% QoQ and 31% YoY to Bt12.2bn. The decrease is mainly due to
lower crude oil prices and an increase in amortization expenses related to dry holes.

We revised down our 2014 and 2015 profit forecasts to reflect market expectations of weak Dubai crude
prices next year and some extra expenses.

We rolled over our target price to that of 2015 at Bt179.0 vs our 2014 target price of Bt185.50. Despite the
downward revision of our earnings forecast and lower target price, we maintain our BUY recommendation
due to PTTEP’s healthy growth opportunities in the longer term.
Table 1: PTTEP’s 3Q14 earnings preview
Unit: MMTHB
Sales revenue
Cost of sales
Gross profit
Interest expenses
Income taxes
Net profit
EPS (Bt/share)
Gross Margin (%)
Operating Margin (%)
EBITDA Margin (%)
THB/USD exchange rate - average
THB/USD exchange rate - end of period
Petroleum Sales Volume (KBOED)
Avg. Petroleum Sales Price ($/BOE)
Dubai Crude Oil Price ($/BBL)
3Q13
57,100
21,223
35,877
1,349
8,828
17,805
4.49
2Q14
64,255
28,881
35,374
1,894
7,581
18,187
4.58
3Q14F
64,107
31,286
32,821
1,886
10,320
12,243
3.08
63%
48%
71%
55%
40%
71%
32.46
32.46
316
67.7
106.0
51%
37%
68%
32.10
32.37
322
65.7
101.5
287
65.7
106.0
%QoQ
-0.2%
8.3%
-7.2%
-0.4%
36.1%
-32.7%
-32.7%
%YoY
2014F
2013
12.3% 247,296 224,973
47.4% 108,739
81,193
-8.5% 138,557 143,780
39.7%
6,800
6,175
16.9%
38,038
46,712
-31.2%
57,057
56,155
-31.2%
14.37
14.14
%YoY
9.9%
33.9%
-3.6%
10.1%
-18.6%
1.6%
1.6%
Source: PTTEP, AWS estimates

3Q14 profit to drop QoQ. We expect PTTEP’s 3Q14 net profit to decrease 32.7% QoQ to Bt12.2bn. This is mainly
due to (1) a drop in Dubai crude oil prices, resulting in lower petroleum sales prices on average, (2) a significant
increase in exploration expenses - particularly amortization expenses from dry holes in Kenya’s L10A project and in
Australia’s Cash Maple areas (from management guidance, total amount of these amortization expenses should be
around US$110mn), and (3) there were no extra gains in KKD swap transactions as occurred in 2Q14. However, we
believe the QoQ increase in petroleum sales volume and stable sales prices of natural gas should, to some extent,
help shoring up PTTEP’s 3Q14 net profit. The details of petroleum sales volume and sales prices are as follows.
(1) Petroleum sales volume is expected to increase by 2.0% QoQ to around 322 KBOED thanks mainly to: (1) the
start-up of Zawtika Project, Thailand segment (240 MMSCFD gas production), since 05 August 2014 following the
previous start-up of the Myanmar segment (60 MMSCFD gas production) in April, and (2) a full-quarter revenue
recognition of petroleum productions in the Contract 4 Project and Sinphuhorm Project, since PTTEP acquired
additional interests in these projects on 23 April 2014. We believe the above-mentioned surge in sales volume will
partly offset a drop in petroleum sales volume from the shutdowns of South Bongkot, Vietnam 16-1, and Montara
Project during the period.
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Results Preview
10 Oct 2014
(2) An average petroleum sales price is expected to decrease by a 3.0% QoQ to US$65.7/BOE due to a decline
in Dubai crude oil prices (-4.2% QoQ on average), resulting the liquid sales price to drop by the same proportion.
However, we expect an average sales price of natural gas to remain unchanged because the movements of gas
prices normally lag behind those of crude prices by 6-12 months. Moreover, additional sales volume of natural gas
from the above-mentioned Zawtika Project in Thailand segment, which commands high selling gas prices, to a great
extent, should help offset the downward pressure of the average gas prices.

Downward revision of earnings forecast. We estimate that PTTEP’s 9M14 net profit should represent only 66.5%
of our previous 2014 profit forecast. The worse-than-expected operating performance so far this year as compared
with our full-year estimate was due to some extra expenses occurred during the period, particularly the larger-thanexpected amortization expenses of dry holes and the extra expense of the unsuccessful H5 well. Moreover, PTTEP’s
bond issues in June have resulted in higher-than-expected interest expenses. As a consequence, we revised down
our 2014 profit forecast by 10.7% from Bt63.9bn to Bt57.1bn. However, we believe 4Q14 operating performance
should improve QoQ as we do not foresee any high extra expenses to take place in the quarter. In addition, PTTEP
will have a full-period revenue recognition for gas production in Zawtika Project (both Thailand and Myanmar
segments) for the first time in 4Q14.
For 2015, we revised down our Dubai crude price estimate from US$100.0 per barrel to US$95.0 per barrel because
of escalating concerns about oversupply of crude oil in the global markets particularly from shale oil & gas from
North America region and the resumption of oil production in Lybia and Iraq. However, we believe the recovery of the
world economy, especially the Eurozone and China, will occur in late 2015 and that will then help stimulate
petroleum demand and revive the Dubai crude oil prices. As a consequence, the revised 2015F net profit decreases
4.2% from our previous projection but still increases 10.5% YoY.

Maintain a BUY recommendation. Under the new forecast, we also revised down and rolled over our target price to
that of 2015 at Bt179.0 (NPV approach, 10% discount rate) from our previous 2014 target price of Bt185.50. Despite
the downward revision of our earnings forecast and lower target price, we maintain our BUY recommendation due to
PTTEP’s healthy growth opportunities in the longer term. Particularly, we foresee that the government’s acceleration
of the upcoming 21st bidding round for E&P gas blocks in Thailand presents great opportunities for PTTEP. This is
not in our projections.
Mr. Napat Siworapongpun License No: 49234
Tel: 02 680 5094
E-mail: Napat.Si@asiawealth.co.th
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10 Oct 2014
รายงานการประเมินการกากับดูแลกิจการ (CGR) โดยสมาคมส่งเสริมสถาบันกรรมการบริษทั ไทย 2556
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013.
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Head Office
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