PTTEP - Preview 3Q24F: QoQ drop expected

Oil prices have risen 8% since the end of September, but PTTEP shares have only increased by 4%.
Despite expected weaker QoQ profit in 3Q24, rising oil prices due to geopolitical tensions are a short-term catalyst.
Target price for PTTEP is reduced from Bt204 to Bt172 (end-2025), but the OUTPERFORM rating remains due to strong earnings and balance sheet.

Weaker profit expected in 3Q24F. We expect 3Q24F net profit (release on Oct 28) of Bt17.3bn, -4.4% YoY and -27.8% QoQ, on lower sales volume and higher unit cost. This includes net gains from non-recurring items of Bt522mn vs. a loss of Bt512mn in 2Q24. Recurring profit is expected to fall 11.5% YoY and 31.5% QoQ as 3Q24 sales volume is expected to drop 3.9% QoQ to 487kBOED, slightly better than the previous guidance of 484kBOED and higher than the 5-year average quarterly sales volume of 426kBOED. Behind the drop in sales volume is the planned shutdown of several gas fields in Thailand and fewer oil shipments out of its joint ventures in Algeria.

ASP to edge up QoQ despite lower spot oil price. We estimate a 1% QoQ rise in ASP to US$47.5/BOE on higher gas price (+1.7% QoQ) to US$5.9/mmbtu. Price of liquid products (-3.1% QoQ) is down less than the 7.6% QoQ fall in average Dubai oil price due to the lag for adjusting oil price from operating fields in Oman and UAE. This means price of liquid products was at a premium to spot price, which moved down in 3Q24. This also reflects the effect of a higher proportion of liquid product at 28% in 3Q24 vs. 26% in 2Q24.

Unit cost to increase on volume effect and higher oil production. We expect unit cost in 3Q24 to rise 5.4% YoY and 8.7% QoQ to >US$30/BOE on lower sales volume, more maintenance expenses and higher weighting of sales from high-cost production at Malaysian assets. This was slightly higher than its earlier guidance of US$28-29/BOE. We expect EBITDA margin to stay at >75% in 3Q24 compared to 76% in 1H24.

4Q24 volume up QoQ but offset by lower ASP. We estimate a 7-9% QoQ rise in PTTEP’s sales volume in 4Q24 to 520-530kBOED from higher oil loading at operating projects in Malaysia and Algeria as well as a full quarter production from fields in the Gulf of Thailand after maintenance shutdowns in 3Q24. This implies full-year sales volume of 499kBOE vs. guidance of 501kBOED and INVX assumption of 490kBOED. We believe there remains some upside to our current forecast.

TP cut to Bt172 based on DCF (end-2025). We roll TP to end-2025 to Bt172/share, based on L/T Dubai of US$68/bbl and Brent of US$70/bbl from 2026F vs. five-year average of US$72. The lower TP reflects our revised Brent oil price assumption for 2024 of US$82/bbl (down from US$85) and 2025 of US$77/bbl (down from US$80). We maintain our volume assumption at 3% below guidance to provide a margin of safety. At our TP, it trades at 1.2x 2025F PBV or at 5-year average.

Risk factors: 1) Volatile crude oil price, 2) higher unit cost, 3) asset impairment and
4) regulatory change on GHG emissions. Key ESG risk factors are the environmental impact of its business and adapting to transition to clean energy.