Thai Oil PCL  TOP < Bt40.75 > Recommendation New         :  BUY ON WEAKNESS  Previous  :  BUY ON WEAKNESS  Fair Value  : Bt48.00

3Q09 earnings slightly better than expected 3Q09 net profit Bt1,978mn, down 68% qoq, but 3% above The company reported a 3Q09 net profit of Bt1,978mn (EPS Bt0.97), down 68% qoq and improved over the huge loss of Bt5,802mn or Bt2.84/share (due to inventory loss of $10.3/barrel) in the same period of last year. The lower gross refining margin (GRM), an inventory gain and a forex gain caused a drop in this quarter's earnings compared to last quarter. The norm. GRM was reported at $0.7/barrel, down from $1.2/barrel in 2Q09, while the gross integrated margin (GIM) was $4.1/barrel improved from a negative $4.1/barrel in the same quarter of last year. TPX reported an improved net profit up 3% qoq to Bt1,954mn based on higher benzene spreads, which recovered from $79/tonne in 2Q09 to $160/tonne in 3Q09 despite paraxylene spreads dropping from $475/tonne in the previous quarter to $355/tonne this quarter. The company recorded a forex gain of Bt440mn, down from Bt1,297mn in 2Q09 due to narrow a stronger baht compared with last quarter. 4Q09 outlook to slow following a lower GRM and spread The current GRM continues to weaken in 4Q09 following a slowdown in refined oil demand. The Singapore GRM in 4Q09 is to date $1.2/barrel, down from an average of $3.14/barrel in 2Q09, which we expected to not to cover the cash cost. However, the recent rise in crude oil prices to $75-80/barrel from 3Q09 end price of $66/barrel, is expected to help the company to book an inventory gain this quarter to support the lower GRM. In petrochemicals, we expect the business to slow from a lower spread both in paraxylene and benzene. Paraxylene margins dropped 41% qoq to $210/tonne, while benzene declined 31% qoq to $110/tonne based on new supply coming into the market. We roughly estimate that the company 4Q09 earnings will weaken 3Q09, but be absolutely better than the huge loss in 4Q08. Maintain Buy on weakness with a target price of Bt48 We expect the company to pay a 2H09 dividend of Bt1.95, after an interim dividend of Bt1.05, for 1H09 representing a full year yield of 7.4%. With some short-term negative factors, such as a lower GRM, a weaker spread, the slowdown in 4Q09 earnings outlook and the delay in the PTT group merger, we are maintaining our Buy on Weakness recommendation on TOP with a target price of Bt48 (based on a target PER of 8x). Earnings summary Year End Dec 31 2007 2008 2009F 2010F 2011F Sales (Btmn) 261,051 399,125 322,442 311,482 300,800 EBITDA (Btmn) 30,268 12,763 23,661 26,804 26,620 Normalised earnings (Btmn) 17,884 4,947 12,270 13,218 12,962 Earnings (Btmn) 19,118 224 12,270 13,218 12,962 EPS (Bt) 9.37 0.11 6.01 6.48 6.35 PER (x) 4.3 371.8 6.8 6.3 6.4 EV/EBITDA (x) 3.7 9.8 5.1 4.3 4.0 Free cash flow (Btmn) 5,525 -1,200 8,063 8,787 12,939 CF/share (Bt) 11.1 4.1 9.6 10.2 10.3 BVPS (Bt) 33.0 28.9 32.9 37.4 41.7 P/BV (x) 1.2 1.4 1.2 1.1 1.0 DPS (Bt) 4.50 1.75 3.00 3.00 3.00 Dividend yield (%) 11.0% 4.3% 7.4% 7.4% 7.4% Net debt/equity (x) 0.4 0.7 0.5 0.4 0.3 ROA (%) 14% 0% 9% 9.8% 9% ROE (%) 31% 0% 19% 18.4% 16% Source : Company reports and KELIVE Research estimates. TOP income statement (Btmn) 3Q09 2Q09 QOQ 3Q08 YOY 9M09 FY09F % Sales 78,035 70,600 11% 110,637 (29%) 205,179 322,442 64% COGS 75,928 63,532 20% 117,476 (35%) 192,368 306,320 63% Gross profit 2,108 7,068 (70%) (6,839) N.A. 12,811 16,122 79% Gross margin (%) 2.7% 10.0% N.A. -6.2% N.A. 6.2% 5.0% N.A. SG&A 297 390 (24%) 250 19% 914 818 112% EBITDA 3,900 8,696 (55%) (5,319) N.A. 17,947 23,661 76% EBITDA margin (%) 5.0% 12.3% N.A. -4.8% N.A. 8.7% 7.3% N.A. Interest expense 503 534 (6%) 581 (13%) 1,681 1,668 101% Net profit before extra items 1,538 4,913 (69%) (5,368) N.A. 9,140 12,270 74% Extraordinary gain (loss)                           - Forex gain (loss) 440 1,297 (66%) (79) N.A. 1,332 0 N.A. - Other (loss) (1 ) (21 ) (95%) (355 ) N.A. (22) 0 N.A. Net profit 1,978 6,189 (68%) (5,802) N.A. 10,450 12,270 85% EPS (Bt) before extra items 0.75 2.41 (69%) - 2.63 N.A. 4.48 6.01 74% EPS (Bt) 0.97 3.03 (68%) (2.84) N.A. 5.12 6.01 85% Source : KELIVE Research estimate Source : TOP and KELIVE Research estimate Source : TOP and KELIVE Research estimate   Source : Reuters and KELIVE Research estimate Source : Bloomberg and KELIVE Research estimate Income Statement (Btmn) 2007 2008 2009F 2010F 2011F Sales 261,051 399,125 322,442 311,482 300,800 Other income 626 2,276 2,176 2,225 2,201 Total revenues 261,677 401,401 324,618 313,707 303,001 Cost of Goods sold 230,484 387,624 300,139 286,114 275,618 Depreciation and Amortization 4,966 6,148 6,181 6,679 7,135 SG&A and Others Expenses 925 1,012 818 790 763 EBIT 25,302 6,616 17,480 20,124 19,486 Interest expenses 1,726 2,116 1,668 1,592 1,510 EBT 23,576 4,499 15,812 18,532 17,976 Minority Interest 402 336 378 680 518 Equity Acc. + Extraordinary Gains 1,234 (4,723) - - - Net profit 19,118 225 12,270 13,218 12,962 Source : TOP and KELIVE Research estimate Balance Sheet (Btmn) 2007 2008 2009F 2010F 2011F ASSETS            Cash & Deposits 4,760 8,555 700 2,079 8,532 Accounts receivable 23,045 15,320 15,497 14,970 14,457 Inventories 32,802 20,545 20,653 19,688 18,966 Other current assets 1,992 10,179 9,060 8,900 8,745 Total current assets 62,598 54,599 45,910 45,638 50,700 Investments 145 229 229 229 229 Property, Plant and Equipment 71,440 72,215 78,033 83,354 84,219 Other assets 2,387 5,798 5,463 5,630 5,547 Total Assets 136,570 132,841 129,636 134,852 140,695 LIABILITIES            OD + Current portion of L-T debt 1,450 12,870 3,339 3,181 3,030 Account payable + Trust Receipt 26,050 15,618 16,132 15,378 14,814 Other current liabilities 4,737 1,785 2,375 1,856 2,048 Total current liabilities 32,237 30,273 21,847 20,416 19,892 Long term debts 13,393 18,897 15,558 12,377 9,346 Debentures + CDs 17,349 18,300 18,300 18,300 18,300 Other liabilities 1,754 1,791 1,773 1,783 1,779 Total liabilities 64,733 69,261 57,477 52,875 49,318 Minority Interest 4,450 4,657 5,035 5,715 6,234 SHAREHOLDERS' EQUITIES            Shares + Warrants 20,400 20,400 20,400 20,400 20,400 Premium on shares 2,456 2,456 2,456 2,456 2,456 Retained earnings + Revaluation 44,530 36,065 44,267 53,405 62,287 Total shareholders' equity 67,387 58,922 67,123 76,261 85,143 Total liabilities and equity 136,570 132,841 129,636 134,852 140,695 Source : TOP and KELIVE Research estimate Statement of Cash Flow (Btmn) 2007 2008 2009F 2010F 2011F Net profit 19,118 224 12,270 13,218 12,962 + Depreciation & Amortization 4,966 6,148 6,181 6,679 7,135 - Sales of fixed assets - - - - - + Decrease in working capital (3,364) 4,602 1,020 837 790 + Others 1,983 (2,533) 53 53 54 Operating cashflows 22,702 8,441 19,525 20,788 20,940             Purchase of fixed assets (17,140) (8,766) (12,000) (12,000) (8,000) Investment in affiliated (208) (976) 538 (1) (1) Other investing activities 171 101 - - - Investing cashflows (17,178) (9,641) (11,462) (12,001) (8,001)             Payment of dividend (7,650) (9,180) (4,080) (4,080) (4,080) Equity Increase 194 207 378 680 518 Other debt financing 4,580 (10,502) 8,561 (1,995) (6,144) Internal financing cash flows (2,877) (19,475) 4,859 (5,395) (9,705)             External financing (12,562) 12,826 (12,562) (12,562) (12,562) Issuing debentures and CDs - - - - - Borrowing from banks (12,562) 12,826 (12,562) (12,562) (12,562)             Last year outstanding debt 31,452 32,191 50,067 37,197 33,858 This year outstanding debt 32,191 50,067 37,197 33,858 30,677 Source :TOP and KELIVE Research estimate Due to different characteristics, objectives and strategies of institutional and retail investors, the research reports of Kim Eng Research and KELIVE Research may differ in either recommendation or target price, or both. KELIVE Research is intended for retail investors (http://kelive.kimeng.co.th )while Kim Eng Research is intended only for institutional investors based outside Thailand ( www.research.kimeng.com). It is therefore important for each investor to read and understand the assumptions and basis of recommendation of each report. This research report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation, or particular needs of any specific person who may receive this report. The information contained herein is provided on the basis of information received or provided to us, but its completeness and accuracy are not guaranteed. Opinions expressed in this report are subject to change without notice, and no part of this publication is to be construed as an offer, or solicitation of an offer, to buy or sell any securities or financial instruments whether referred to therein or otherwise. We do not accept any liability whatsoever whether direct or indirect that may arise from the use of information contained in this report, or a reliance on our opinion expressed in this report. Kim Eng Securities (Thailand) Public Company Limited, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.