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BCP’s share price is down 16% from a month ago, underperforming the SET’s slip of 3% on concerns about a weak 2Q24 on lower GRM and a major turnaround of its refinery and OKEA’s largest operating field (Statfjord). We believe this also reflects market anxiety about persistent regulatory risk lying in the government’s intervention in domestic energy prices and potential impact on ex-refinery oil price, which we believe is overdone as changes in regulations and laws are time consuming - if not impossible. Valuation is undemanding with 2024F PE of <4x and PBV of 0.6x (-1.5SD). We expect an attractive dividend yield of >7% (2024F). We maintain Outperform with SOTP TP cut to Bt46 from Bt51. We remain positive on 2024F backed by contribution from oil refining and retail marketing (including BSRC) and E&P.
Catalyst#1: Earnings to improve in 3Q24F. Stronger GRM and more stable oil price will fuel profit in 3Q24F after the expected weaker earnings QoQ in 2Q24. BCP should be able to maintain a high crude run in 3Q24 after a 27-day major refinery turnaround in May (its shortest ever refinery shutdown). After this shutdown, the maintenance cycle will be extended to four years vs. 2-3 years now. Synergy with BSRC, which will maximize gasoline production to accommodate BCP’s oil retail outlets, will optimize overall GRM of its group. We also expect better contribution from the E&P segment on higher production at Statfjord area operated by Equinor (with 28% working interest) whose operations dropped QoQ due to a planned maintenance shutdown. We also see limited downside risk from impairments on this asset.
Catalyst#2: Recovering gas price in Europe supports OKEA. The 3Q24TD average natural gas price in Europe is up 3.9% QoQ to €32.93/MWh (~US$8.9/mmbtu) amidst high storage levels. Risks to the upside remain for natural gas prices as geopolitical tensions in the Middle East and the Russia-Ukraine war show little signs of abating, and in fact may intensify. Climate change has also intensified summer heat in many parts of the world, potentially increasing cooling demand. (Techopedia) The UK, the key market for OKEA’s gas supply, is expected to experience a warmer-than-average summer in 2024. After the hottest month in July, with temperatures up to 2°C above average, August is also expected to be very warm. (Netweather.tv)
Catalyst#3: Valuation at deep discount to peers. BCP is trading at EV/EBITDA of 4.4x (2024F) on a consolidated basis, a deep discount to 12.8x for regional peers. The market seems overly concerned about weaker earnings in 2Q24 and the government’s intervention in capping domestic oil price, as well as the potential for asset impairment of its E&P business. The current share price, net of other listed companies, implies trailing EV/EBITDA of merely 3.4x of its refinery and marketing businesses.
Action & recommendation. We maintain our Outperform on BCP in view of its solid earnings outlook and business diversification, though SOTP TP is cut to Bt46 from Bt51 to reflect lower valuation of power and E&P businesses. This implies 4.6x EV/EBITDA (2024F) vs. 10-year average of 7.4x. Valuation is still undemanding at only 3.3x 2024F PE; dividend yield is also attractive at >7% for the next three years.
Risks & concerns: Economic slowdown would hurt demand for refined oil products and GRM while oil price volatility may cause more stock loss. Other risks are regulatory changes on GHG emissions, asset impairments for the E&P business and government intervention in domestic retail oil price. Key ESG risk factors include the environmental impact of its business and how it adapts during the transition to clean energy.
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