 Net loss of Bt2.1bn in 2Q23 was worse than we expected on weaker market GRM and FX losses of Bt633mn. The gap between SPRC’s market GRM and Singapore was wider than expected, indicating higher logistics costs for crude oil loading. Crude run slid QoQ to 159kbd in 2Q23 from 162kbd in 1Q23 in response to an unfavorable crack spread. 1H23 net loss of Bt886mn was disappointing but we are more optimistic on the oil refining industry given the recent recovery of GRM. Nonetheless, we slashed 2023F forecast 38% to Bt3.1bn (-59% YoY). We stay Neutral with TP cut to Bt11.4/share based on 1.3x PBV (2023), implying EV/EBITDA of 7x. Market GRM down QoQ on weaker middle distillates crack spread. Market GRM plunged to merely US$1.34/bbl in 2Q23 on a fall in crack spread for middle distillate products (46-47% of total output) to US$14.5/bbl in 2Q23 from US$25/bbl in 1Q23 due to lower demand and more supply from new refineries in the Middle East. Crack spread for gasoline also slid QoQ to US$16.5/bbl from US$18.7/bbl in 1Q23 as recovery of demand for transport fuel after China’s reopening was weaker than expected. The gap between SPRC’s GRM and Singapore GRM widened QoQ to nearly US$3/bbl from <US$2/bbl in 1Q23, indicating an increase in the associated logistics cost for crude oil loading in 2Q23. Lower oil price also led to Bt1.4bn in inventory losses in 2Q23(-US$2.79/bbl). In all, accounting GRM soured at a negative US$1.45/bbl. Crude intake down QoQ due to unfavorable market. SPRC’s crude intake fell slightly to 159kbd (91% utilization of equivalent distillation capacity) vs. 162kbd in 1Q23 as the company intentionally reduced crude run to optimize earnings during a period of weak market GRM, especially for gasoil and jet fuel. Gasoline yield was trimmed to 24.3% in 2Q23 from 25% in 1Q23 despite a smaller decline in crack spread than for middle distillate products. It also increased yield of light naphtha for feedstock exchange with PTTGC. Higher market GRM in 2H23 is expected to revive earnings. We expect the recent recovery in market GRM and higher oil price to reverse SPRC’s earnings back up to the black in 2H23. Management also said the single-point mooring facility is expected to resume normal operations in 4Q23, lowering operating cost. However, the earnings disappointment in 1H23 led us to slash our net profit forecast for 2023F by 38% to reflect a more realistic GRM assumption and lower crude run. We cut TP to Bt11.40 based on 1.3x PBV (2023) from Bt12. Key risks: Economic slowdown may hurt demand for its refined oil products which could also damage market GRM, while oil price volatility may bring more stock loss. Other risks include more expenses related to logistics costs if the oil loading facility does not come back on line as scheduled in 4Q23 and regulatory changes in GHG emissions. |
