TOP - 3Q24: Net loss was in line

TOP reported a net loss of Bt4.2bn in 3Q24, in line with estimates. Behind this was a huge inventory loss of US$5.4/bbl (Bt5.4bn) plus Bt2.1bn in write-down of crude and product inventory. This exceeded its GIM of US$5.4/bbl in 3Q24. Net operating profit plunged 89% YoY and 70% QoQ on weak GRM and aromatics product spread and loss contribution from associates in other businesses such as CAP (olefins). 9M24 profit is Bt7.1bn, far below our full-year estimate of Bt12.4bn after the hit from inventory loss and weak GRM in 3Q24, leading us to trim our 2024F by 10%. TP is maintained at Bt71 (1x PBV 2025F), implying 8.3x EV/EBITDA. We stay OUTPERFORM on undemanding valuation and better earnings outlook in 4Q24 and 2025.

Higher crude run to optimize unit cost. Despite the unfavorable market GRM, total intake rose 1% QoQ to 313kbd, the highest since 2Q13 due to a higher oil refinery run rate at 113% from 111% in 2Q24 to maintain low unit cost amidst a weak market GRM in 3Q24. It was able to manage the crude offloading process, although SBM-2 remained offline. Operating cost/unit inched up to US$1.9/bbl vs. US$1.6/bbl in 2Q24 on maintenance expense for upgrading units and US$0.5/bbl higher freight cost for crude shipments until SBM-2 reopens.

GIM down QoQ with a big hit from inventory losses. Market GIM fell 60% YoY and 5% QoQ to US$5.4/bbl due to lower oil refining margin, whose contribution to total GIM fell to US$3.8/bbl in 3Q24 from US$3.7/bbl in 2Q24. Marketing GIM was wiped out by inventory loss of US$5.4/bbl, turning accounting GIM to zero, the lowest since 3Q22. It also wrote down crude and product inventory by Bt2.1bn, as per its accounting method, which will be reversed at the beginning of 4Q24.

Contribution from aromatics down QoQ. Aromatics profit fell 69% QoQ from weak product spread on a lower product-to-feed margin of 18% QoQ, especially for PX. Lube base oil profit rose 50% QoQ on stronger product spread as fuel oil price fell QoQ, widening product-to-feed margin by 22% QoQ. TOP also raised lube base oil utilization rate to 86% from 83% in 2Q24 to gain from the strong product margin.

4Q24F outlook hopeful. Core profit is expected to improve QoQ in 4Q24F on the seasonal demand for middle distillates (>55% of total product) despite a continued weakening in average Singapore GRM YoY in 4Q24TD from US$5.47/bbl in 4Q23. Note that global gasoil stock remains below the 5-year average, while refinery run continued to fall in 3Q24 due to unfavorable market GRM. We also expect lower impact from China’s third batch of export quotas at only 8mt or only 20% of the total quota for clean oil products in 2024 vs. 80% allocated in 9M24.

2024F revised down; TP maintained. After the weak 3Q24, we trim our 2024F by 10% to Bt11.1bn (-43% YoY). This reflects a market GIM of US$8.8/bbl (vs. 9M24 of US$7.1) and crude run of 110% (in line with 9M24). We keep TP at Bt71, based on 1x PBV (2025F), the 5-year average. This implies 8.3x EV/EBITDA compared with the current valuation of regional peers at 8.4x. The stock is trading at 0.5x PBV (-2SD), the same multiple as during the pandemic years.

Key risks: Volatile oil price and GRM, weaker oil price causing inventory loss and lower demand for aromatics. Other risks are potential delay of CFP startup and GHG emission regulatory changes. Key ESG risk factors include the environmental impact of its business and how it adapts during the transition to clean energy.