3Q24 earnings plunged to a net loss of Bt19.3bn, worse than expected on higher asset impairment as it decided to book Bt17.5bn in impairment charges for both Vencorex (plus expenses related to business restructuring) and PTT Asahi. Net operating profit remained in the red at Bt1.1bn, though improved from the loss of Bt1.7bn in 2Q24, upon lower profit in the intermediate chemical and performance chemical segments and a net stock loss of Bt3.6bn. Earnings were supported by olefins and polymers as well as aromatics. 9M24 net loss came to Bt18bn, worse than expected due to stock losses and we thus revise down our 2024F to a net loss of Bt17.8bn. We had already assumed Bt20bn in impairment charges as management guided. We cut our TP (end-2025) to Bt35 and stay OUTPERFORM as the impairment overhang is mostly done with and valuation is undemanding at 0.4x PBV (2025F).
PTTGC – 3Q24: Hit by impairment charges
Operating profit in the red in 3Q24. Although polymer and aromatics segments gave good support to operations, net operating profit was still in the red at Bt1.1bn. Behind this was lower profit for performance chemicals and intermediate products, especially propylene-based, due to higher feedstock cost. Performance chemicals adjusted EBITDA fell 28% QoQ due to a 5% QoQ drop in sales volume at Allnex and a slip in EBITDA margin to 12% from 14% in 2Q24, which led to a 16% QoQ fall in Allnex’s EBITDA. Vencorex contributed an EBITDA loss of Bt658mn on weak demand, with plants in France still running before restructuring in 4Q24.
Polymers and aromatics drove earnings. Profit contribution from polymers (24% of total adjusted EBITDA) shot up 72% QoQ, underwritten by a premium price for PTTGC’s product above commodity-grade products, where spread weakened in 3Q24. This expanded adjusted EBITDA margin for the segment to 8% in 3Q24 from 5% in 2Q24. Aromatics also performed well, with a 19% QoQ growth in adjusted EBITDA due to a 10% QoQ rise in product-to-feed margin driven by the segment’s byproducts, naphtha and LPG, and lower condensate cost.
Core profit in 4Q24 to improve QoQ. We expect better crack spread for middle distillate products (>70% of total refined oil products) to lift market GRM in 4Q24. Contribution from petrochemicals could slow as it is the low season and there will be a slight rise in feedstock cost despite higher gas feedstock from PTT.
Cut 2024F forecast and TP. We revise down our 2024F to a net loss of Bt17.8bn from a net loss of Bt12.5bn to incorporate stock loss and weaker GRM than expected. We cut our TP to Bt35 from Bt37, based on 0.6x PBV (2025F) or -1.5SD. This implies 5.6x EV/EBITDA (2024F) vs. 10-year average of 9x, still below regional average of >10x.
Key risk factors: 1) Volatile crude oil price and product spread for oil refining and petrochemicals, 2) higher feedstock cost due to lower gas feedstock, 3) asset impairment, 4) regulatory change on GHG emissions and single-use plastics (<3% of capacity), and 5) change in allocation of domestic gas supply to petrochemicals. Key ESG risk factors include environmental impact of its business and how it adapts during the transition to clean energy and circular economy.