OR’s 2Q23F (Aug. 9) is expected to skid 5% QoQ to Bt2.8bn (-56.9% YoY) on a seasonal fall in sales volume and a narrower marketing margin (gross profit/liter) for the mobility (oil) segment, though we expect the lifestyle (non-oil) segment EBITDA margin to improve QoQ on better expense control. The high base in 1H22 is behind 1H23’s 44% YoY fall in profit but we expect a material YoY recovery in 2H23. We maintain our forecast of 31% growth in net profit to Bt13.6bn in 2023 based on a conservative gross profit of Bt1/liter vs. Bt0.98 in 2022 and Bt0.97 5-year average. We reaffirm our Outperform rating with TP of Bt27, based on 14x EV/EBITDA.
Mobility segment: seasonally lower sales volume. Lower diesel sales to power plants is expected to pull down overall sales volume by 1.5% QoQ to 6.9bn liters in 2Q23, flat YoY. Diesel sales to power plants accounted for 5% of overall sales volume in 1Q23 and this is expected to fall to <1% in 2Q23 as natural gas price is normalizing. We also expect gross profit/liter to decline from Bt1.01 to Bt0.8/liter due to the lag before jet fuel selling price is adjusted; retail marketing margin remained healthy. We estimate a 37% QoQ fall in this segment’s EBITDA.
Lifestyle segment: slight widening in EBITDA margin expected. EBITDA contribution from the lifestyle segment is expected to widen marginally in 2Q23 (+5.4% QoQ) on a better EBITDA margin and higher sales volume at Café Amazon (+2% QoQ) due to better expense control. Gross margin for the non-oil business was stable given the long-term contracts with suppliers. We expect EBITDA margin for the lifestyle segment to edge up to 25% in 2Q23 from 24.2%.
Global segment: more sales volume in the Philippines. OR’s business in the Philippines is expected to be key to global segment earnings in 2Q23 as OR won the bid to supply aviation fuel to the domestic market. At the same time, we expect profit contribution from the global business to remain miniscule.
Net profit growth forecast of 31% in 2023F intact. Although 1H23F net profit will weaken YoY off the high base, a better marketing margin and lower marketing expenses in 2023F will drive net profit up 31% to Bt13.6bn after a hiccup in 2022. This assumes gross profit of the mobility segment at Bt1/liter and EBITDA margin of the lifestyle segment at 24.5%, slightly below 24.8% in 2022, to account for higher operating cost.
Valuation of Bt27 is based on 14x EV/EBITDA. We value OR based on EV/EBITDA (2023F) of 14x, the average retail business multiple in the Thai market. This implies P/E (2023F) of 23.6x, slightly lower than the average of 29x for 2021-22 and PBV of 2.9x vs. 2021-22 average of 3.2x. The assigned multiple is premium to its peers in oil marketing to reflect the company’s leadership in the market.
Risk factors: An economic slowdown would erode demand for OR’s oil and non-oil products while oil price volatility may cause more stock losses. Other risks are government intervention in capping retail oil price, particularly diesel, and higher competition and production cost that cannot be passed on.
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