TOP’s 3Q24F earnings are likely to be more damaged than expected by weak market GRM and the downward trend of oil price and we now expect a net loss of Bt4.2bn, the first quarterly loss since 1Q20. 4Q24F looks better on better GRM in high season for middle distillate products (>55% of total refined oil products) and lower stock loss. We believe the market has priced in the weak 3Q24, as share price has fallen 12% vs. the SET’s gain of 4%. We slash our 2024F by 34% to reflect the weaker 9M24 profit. TP (end-2025F) is cut from Bt77 to Bt71 (1x PBV 2025F), implying 7.9x EV/EBITDA. Maintain OUTPERFORM; accumulate after 3Q24F results are announced (expected on Nov 8).
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TOP – Preview 3Q24F: Stock loss to hurt earnings
3Q24F earnings to fall into the red on low GRM and stock loss. We estimate a 60% YoY and 5.3% QoQ plunge in TOP’s market GIM to US$5.4/bbl on a poor oil refining margin, pulled down by a 15% QoQ fall in gasoline crack spread and an 8% QoQ drop in diesel. Contribution from aromatics and lube base oil combined is expected to slip 5% QoQ to US$1.8/bbl despite a higher contribution from lube base oil QoQ on higher product spread (+9% QoQ). We expect an inventory loss of US$7.5/bbl (including Bt2bn net realizable value of oil inventory).
Higher QoQ crude run expected. Despite the unfavorable market GRM, total intake is expected to edge up 1% QoQ to 314kbd, the highest since 2Q13. This is 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. The company was able to manage the crude offloading process, although SBM-2 remained offline. We expect a slight increase in operating cost/unit to US$1.9/bbl vs. US$1.6/bbl in 2Q24 on the maintenance expense for upgrading units.
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 4Q24 from US$5.47/bbl in 4Q23. Note that global gasoil stock remains below the 5-year average, while refinery run has continued to decline 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.
Earnings forecast revised down for 2024F; TP reduced. Given the disappointing market GRM and potential stock loss in 3Q24, we revise down our 2024F earnings forecast by 34% to Bt12.4bn. This reflects a 24% drop in market GIM to US$9.4/bbl, with a slight offset from a rise in crude run to 110% from 105%. We also cut TP from Bt77 to Bt71, based on 1x PBV (2025F), the 5-year average. This implies 7.9x EV/EBITDA compared with regional peers’ at 8.4x. The stock is trading at 0.6x PBV or -1.9SD, marginally above 0.5x 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 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.