PTTEP – 3Q26F: Weakness is temporary

We remain constructive on PTTEP despite a weaker 3Q26F (due Oct. 30). We forecast net profit of Bt18.6bn, down 32% QoQ due to oil hedging losses and lower sales volume. We view this as a temporary setback, while the new MTJDA A18 PSC materially enhances PTTEP's long-term earnings power through higher entitlement, stronger gas prices, lower DD&A, and reserve additions. We maintain OUTPERFORM with mid-2027 TP of Bt185, based on long-term Brent assumption of US$65/bbl. The stock remains undervalued, implying only US$55/bbl long-term Brent while offering an attractive dividend yield of about 7%.

3Q26F net profit to fall QoQ on lower volume and oil hedging losses. We expect 3Q26F recurring profit of Bt21.1bn, down 13% QoQ but up 74% YoY, as lower sales volume is partly offset by stronger gas pricing and lower DD&A. Net profit is forecast at Bt18.6bn, down 32% QoQ but up 47% YoY, mainly due to oil hedging losses. We estimate a US$76mn non-recurring hedging loss in 3Q26, compared with a US$94mn gain in 2Q26, reflecting realized losses on 12mn bbl settled and mark-to-market losses on the remaining 14mn bbl hedge position.

Sales volume affected by maintenance but supported by new PSC of MTJDA. We forecast 3Q26F sales volume at 525kBOED, down 8% QoQ but up 3% YoY. The decline is attributable to lower gas nominations in the Gulf of Thailand following gas separation plant maintenance, increased shutdown activities, continued FPSO maintenance at Malaysia Block K (Kikeh) and lower oil loadings from Algeria and Malaysia assets. These headwinds are partly offset by higher entitlement volume under the new 35-year PSC of MTJDA A18. Management indicated the retroactive PSC adjustment contributed roughly 4-5kBOED to reported volume in 3Q26.

Strong gas pricing offsets softer liquids. We forecast ASP at US$52.1/BOE, down 2% QoQ but up 21% YoY. Gas price is expected at US$6.5/MMBtu, above previous guidance of US$6.2/MMBtu, driven by improved pricing terms and higher entitlement under the new PSC of MTJDA A18, with additional support from retroactive recognition back to 1Q26. Liquid realizations are expected at a US$2-3/bbl discount to Dubai, a normalized level after recent volatility. We expect unit cost at US$30.2/BOE, as higher maintenance-related OPEX is largely offset by lower DD&A and exploration expenses.

4Q26 volume recovery expected; volume guidance for 2026 trimmed slightly. Management expects 4Q26 gas selling price to normalize to US$6.2-6.3/MMBtu as the retroactive PSC benefit will no longer recur, while unit cost should remain near US$30/BOE. Sales volume guidance for full-year 2026 has been revised to around 550kBOED, slightly below the previous 560kBOED target due to maintenance activities at Sabah H and MTJDA A18-01. Nevertheless, the PSC extension of MTJDA A18-01 remains a key earnings driver through higher entitlement volume, improved gas pricing, lower DD&A and reserve additions. We maintain earnings forecast for 2026F with net profit of Bt80.5bn (+34% YoY).

TP of Bt185 is intact. We keep our DCF-based TP (mid-2026) at Bt185, assuming long-term Brent at US$65/bbl from 2030F. The current share price implies ~US$56-57/bbl, below the forward curve at US$65-66/bbl. We maintain OUTPERFORM on strong cash flow and dividend capacity. Dividend yield of 7% is compelling.

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