3Q24 net loss of Bt1.6bn was worse than expected, depressed by lower gross profit/liter from an inventory loss and weaker lifestyle (non-oil) EBITDA margin due to extra expenses related to the termination of the Texas Chicken franchise and JV investment loss. It also booked a huge FX loss of Bt1.5bn vs. gain of Bt93mn in 2Q24. We expect earnings to rise QoQ in 4Q24 on higher seasonal demand and less pressure on marketing margin from inventory loss. We expect lifestyle EBITDA margin to return to normal. We cut our 2024F by 36% to reflect the weak 3Q24 and cut TP (2025F) to Bt22 (from Bt24) based on 5-year average EV/EBITDA of 12x. With earnings growing in 4Q24 and low valuation of 15x P/E (2025F) vs. 3-year average of 27x, we maintain our OUTPERFORM rating.
OR - 3Q24: Worse net loss than expected
Mobility segment: marketing margin hit by inventory loss. OR’s oil sales volume edged up 1.3% QoQ to 6.5bn liters in 3Q24 on 8% QoQ growth in commercial sales (diesel and jet fuel), while retail sales volume fell 7% QoQ on seasonality. It reported a lower gross profit/liter at only Bt0.51/liter due to an inventory loss of ~Bt2.9bn while normalized gross profit/liter was Bt0.96/liter, still in line with the guidance of Bt0.7-1/liter thanks to high gasoline marketing margin; impact from the Bt33/liter price cap on diesel was lower QoQ as ex-refinery oil prices moved down. The segment’s operating performance turned to a loss of Bt930mn, the second-worst quarter since 2022.
Lifestyle segment: lower EBITDA margin on extra expense. Lifestyle operating profit fell 25.4% YoY and 39.7% QoQ on a drop in EBITDA margin to 20.2% in 3Q24 from 27.3% in 2Q24 from Bt442mn extra expenses related to the termination of the Texas Chicken franchise. The segment also booked Bt110mn loss from JV investment in F&B and a newly launched health & wellness business. Excluding this extra item, the segment’s normalized EBITDA margin was 26.5%, in line with guidance of 25-29%. Sales volume at Café Amazon fell 1% QoQ due to lower seasonal demand during the rainy season, though sales still increased 6.5% YoY due to more outlets (+274 from 3Q23).
Global segment: slight decline QoQ on low season. Contribution from the global business fell 44.3% YoY and 40.4% QoQ although oil sales volume rose 22.6% YoY and fell only 6.4% QoQ due to low season in Cambodia. Behind this was the appreciation of the THB. The segment’s EBITDA slid from 3.3% in 2Q24 to 3% in 3Q24. EBITDA contribution will shoot up to 22% in 3Q24 vs. 11% in 2Q24 on the plunge in EBITDA in the mobility segment.
TP is cut to Bt22 based on EV/EBITDA of 12x. We revise our 2024F by 36% to reflect weak earnings in 3Q24, trimming gross profit/liter assumption to Bt0.85/liter vs. 5-year average of Bt1/liter. We also shave TP to Bt22 based on 5-year average EV/EBITDA (2025F) of 12x. This implies PE (2025F) of 22x, lower than 3-year average of 27x for 2021-23 and PBV of 2.2x vs. 2021-23 average of 2.9x.
Risk factors: An economic slowdown would erode demand for OR’s oil and non-oil products while oil price volatility may cause more stock losses. Other risks are government intervention in capping retail oil price, particularly diesel, and higher competition and production cost that cannot be passed on.