We expect a 5.9% YoY and 20% QoQ fall in 1Q24F net profit (May 14) despite higher contribution from P&R* and solid E&P profit, pulled down by a large >Bt20bn FX loss and its contribution to lower electricity tariff as requested by the government. We expect operating profit to grow 19.5% YoY and 0.7% QoQ to Bt33.4bn on stronger profit for P&R, natural gas and power businesses, backed by higher margin and demand. Earnings will weaken QoQ in 2Q24F as P&R profit will suffer from much weaker GRM while petrochemical product spread remains dull. Despite this, current share price is undemanding at 0.8x PBV (2024F) and 8.8x P/E vs. 10-average of 1.3x and 14.6x. It still deserves an Outperform rating with sum-of-the-parts TP of Bt45. Dividend yield of 5.9% is also attractive.

Better profit at P&R to drive 1Q24F. We expect contribution from P&R associates to boost operating profit in 1Q24F on stronger market GRM (+33% QoQ) with a much lower hit from stock gains/losses vs 4Q23. What will hurt net profit is huge FX losses (non-cash) for the segment, with small gains/losses from derivatives from oil price hedging. Petrochemical operating profit is expected to inch up QoQ on seasonality but persistent weak product price and spread will keep contribution miniscule.

Profit from gas down QoQ. Gas sales volume is expected to improve 10.2% YoY and 5.7% QoQ to 4,494mmcfd due to higher gas consumption by power plants (+16.8% YoY, +9.5% QoQ) on lower gas cost while hydro power supply declined QoQ on seasonality. Gas sales volume to gas separation plants (GSP) is expected to improve 12.8% YoY, though be flat QoQ, after G1/61 ramped up production in 1Q24, raising production in the Gulf of Thailand. We expect GSP sales volume to grow 4.1% YoY and 1.6% QoQ to 1.62mn tons in 1Q24 on the return to normal for demand from customers after planned shutdowns in 4Q23. However, we expect EBITDA contribution from gas to weaken 9% QoQ from PTT’s contribution to lower electricity tariff in Jan-Apr 2024, as requested by the government, using income of Bt4.3bn from a gas shortfall from the former operator of Erawan field under the previous concession.

Profit from oil boosted by higher gross margin. Sales volume for the oil marketing business via OR is expected to fall 7.2% YoY and 6.9% QoQ to 6.5bn liters in 1Q24 on lower seasonal demand for travel in Thailand and lower diesel consumption in the power sector as natural gas price is normalizing. We expect inventory gains to pull gross margin/liter up 18.8% YoY and 60% QoQ to Bt1.2.

2Q24F operating profit to soften QoQ on lower profit from P&R. Although we expect E&P profit to remain solid in 2Q24, market GRM for the P&R segment has sunk 46% QoQ and will drag on the quarter’s profit. The Bt4.3bn contribution in 1Q24 may not be the last, so profit remains at risk of more contributions; the imposition of a single-pool gas price could cost it another Bt6-7bn in 2Q24 if put in place (which PTT will book as lower income at PTT itself) and could bring downside risk to our 2024F to the tune of 4-5% of current net profit forecast.
Key risks: An economic slowdown would erode demand for PTT’s energy and petrochemical products while oil price volatility may cause more stock loss. Other risks are asset impairment, losses from asset divestment, regulatory changes on GHG emissions and the government’s intervention in the retail oil business. Key ESG risk factors are the environmental impact of its business and how it adapts during the transition to clean energy.