Bangchak Petroleum BCP < Bt13.70 > Recommendation New         :  SPECULATIVE BUY Previous  :  SPECULATIVE BUY Target Price :  Bt18.00

To report a 3Q09 earnings of Bt1,972mn 3Q09 earnings to drop 27% qoq to Bt1,972mn We expect the company to report a 3Q09 net profit of Bt1,972mn (EPS Bt1.76), down 27% qoq from lower inventory and hedging gains, but an improvement from a loss of Bt252mn in the same period of last year. We estimate the company to achieve a base gross refining margin (GRM) of $3.1/barrel, down from $4.26/barrel in 2Q09. However, we forecast the company will still book a hedging gain of $4.6/barrel or Bt1,238mn to help offset earnings this quarter. In 3Q09, we expect the company to book a surprising inventory gain of $4.4/barrel compared to other refineries, with no inventory gains. This will be due to the company storing more low priced crude oil than normal since May this year as they wanted to test run the product quality improvement (PQI) project, but the project was delayed and resulted in high crude inventory at low prices. The total GRM will be $12.1/barrel in 3Q09, down from $15.3/barrel in 2Q09. We also expect the utilisation rate to slow from 70% in 2Q09 to 68% (81,700barrels/day) following the slowdown in oil demand. PQI project will operated in mid September The PQI project is currently in test runs with an expected transfer from the EPC contractor this month. We forecast the company 4Q09 earnings outlook will weaken from 3Q09 based on a lower GRM and utilisation rate. The company plans to run the plant at 70,000-75,000barrels/day (utilisation 58-63%) due to a maintenance shutdown of 7-10 days and the ongoing slowdown in domestic refined oil demand. However, the recent rise in crude oil prices is expected to boost the inventory gain this quarter. We also forecast the company to book a hedging gain of around Bt1bn in 4Q09, which will be the last quarter for huge hedging gains. Revised target to Bt18 and maintained Speculative Buy rating We expect the company to pay a 2H09 dividend of at least Bt0.50 after an interim dividend of Bt1 for 1H09 representing an attractive yield of 10.9%. However, the 2010 earnings are expected to slow from this year due to the lack of any huge hedging gains. As a result, we have revised our fair value estimate to be more conservative at Bt18 based on a target PER of 8x (down from 9x). The current share price still looks inexpensive trading on a 2010 PER of 6.1x and offering an upside of 31% to our new fair value estimate. We are maintaining our Speculative Buy recommendation on BCP. Earnings summary Year End Dec 31 2007 2008 2009F 2010F 2011F Sales (Btmn) 94,979 129,042 107,872 118,052 121,594 EBITDA (Btmn) 4,791 1,952 6,189 5,370 5,515 Normalised earnings (Btmn) 2,410 614 3,015 2,527 2,745 Earnings (Btmn) 1,764 (750) 6,516 2,527 2,745 EPS (Bt) 1.58 (0.67) 5.82 2.26 2.45 PER (x) 8.7 N.A. 2.4 6.1 5.6 EV/EBITDA (x) 4.1 14.7 3.6 4.1 3.7 Free cash flow (Btmn) 5,621 (9,129) 5,916 1,744 2,656 CF/share (Bt) 3.9 (1.2) 4.3 2.6 3.4 BVPS (Bt) 19.0 17.6 21.9 23.2 24.6 P/BV (x) 0.7 0.8 0.6 0.6 0.6 DPS (Bt) 0.30 0.50 1.50 0.90 0.90 Dividend yield (%) 2.2% 3.6% 10.9% 6.6% 6.6% Net debt/equity (x) 0.2 0.7 0.3 0.3 0.2 ROA (%) 4% -2% 15% 6% 6% ROE (%) 9% -4% 29% 10% 10% Source : Company reports and KELIVE Research estimates. Source : BCP and KELIVE Research estimate BCP income statement Income statement (Bt mn) 3Q09F 2Q09 QOQ 3Q08 YOY 9M09F FY09F % Sales 30,386 27,114 12% 37,121 (18%) 79,021 107,872 73% COGS 28,086 24,215 16% 35,334 (21%) 72,569 100,321 72% Gross profit 2,300 2,899 (21%) 1,788 29% 6,453 7,551 85% Gross margin (%) 7.6% 10.7% N.A. 4.8% N.A. 8.2% 7.0% N.A. SG&A 820 723 14% 671 22% 2,177 2,869 76% EBITDA 1,819 2,497 (27%) 1,531 19% 5,197 6,189 84% EBITDA margin (%) 6.0% 9.2% N.A. 4.1% N.A. 6.6% 5.7% N.A. Interest expense 128 134 (5%) 418 (70%) 402 717 56% Net profit before extra items 615 936 (34%) 863 (29%) 1,407 3,015 47% Stock gain/(loss) 1,199 1,453 (17%) (295) N.A. 1,549 0 N.A. Net profit before stock gain/(loss) (585 ) (517 ) 13% 1,158 N.A. (142 ) 3,015 (5%) Extraordinary gain (loss)                 - Forex gain (loss) 120 232 (48%) (106) N.A. (152) (272 ) 56% - Other (loss) 1,238 1,536 (19%) (1,008) N.A. 5,010 3,773 N.A. Net profit 1,972 2,704 (27%) (252) N.A. 6,266 6,516 96% EPS (Bt) before extra items (0.52) (0.46) 13% 1.03 N.A. (0.13) 2.69 (5%) EPS (Bt) 1.76 2.42 (27%) (0.22) N.A. 5.60 5.82 96% Source : KELIVE Research estimate Income Statement (Btmn) 2007 2008 2009F 2010F 2011F Sales 94,979 129,042 107,872 118,052 121,594 Other income 409 236 323 279 301 Total revenues 95,389 129,277 108,194 118,331 121,895 Cost of Goods sold 88,064 124,498 99,125 109,808 113,132 Depreciation and Amortization 822 843 1,196 1,161 1,166 SG&A and Others Expenses 2,533 2,828 2,881 3,154 3,247 EBIT 3,969 1,109 4,993 4,209 4,350 Interest expenses 655 854 717 649 598 EBT 3,314 255 4,276 3,560 3,752 Minority Interest - (3) - - - Equity Acc. + Extraordinary Gains (647) (1,364) 3,501 - - Net profit 1,764 (750) 6,516 2,527 2,745 Source : BCP and KELIVE Research estimate Balance Sheet (Btmn) 2007 2008 2009F 2010F 2011F ASSETS            Cash & Deposits 6,738 2,330 3,138 2,989 3,739 Accounts receivable 5,402 4,098 3,971 4,346 4,476 Inventories 11,029 5,916 6,746 7,473 7,699 Other current assets 695 2,320 1,981 2,168 2,233 Total current assets 23,865 14,665 15,836 16,975 18,147 Investments 0 0 0 0 0 Property, Plant and Equipment 18,412 25,235 24,277 24,306 24,334 Other assets 2,701 2,640 2,923 2,884 2,834 Total Assets 44,978 42,540 43,036 44,165 45,315 LIABILITIES            OD + Current portion of L-T debt 1,603 1,874 1,782 1,782 1,782 Account payable + Trust Receipt 9,012 4,527 5,390 5,971 6,151 Other current liabilities 2,820 1,690 1,781 1,715 1,835 Total current liabilities 13,434 8,091 8,953 9,468 9,769 Long term debts 6,677 11,043 5,835 5,053 4,271 Debentures + CDs 2,762 2,762 2,762 2,762 2,762 Other liabilities 881 882 904 893 899 Total liabilities 23,753 22,777 18,454 18,176 17,700 Minority Interest 1 39 39 39 39 SHAREHOLDERS' EQUITIES            Shares + Warrants 1,119 1,119 1,119 1,119 1,119 Premium on shares 7,505 7,505 7,505 7,505 7,505 Retained earnings + Revaluation 12,410 10,891 15,728 17,137 18,762 Total shareholders' equity 21,224 19,724 24,542 25,951 27,576 Total liabilities and equity 44,978 42,540 43,036 44,165 45,315 Source : BCP and KELIVE Research estimate Statement of Cash Flow (Btmn) 2007 2008 2009F 2010F 2011F Net profit 1,764 (750) 6,516 2,527 2,745 + Depreciation & Amortization 822 843 1,196 1,161 1,166 - Sales of fixed assets 59 (3) (948) 0 0 + Decrease in working capital 1,724 (822) 591 (773) (121) + Others (8) (662) (2,552) 0 0 Operating cashflows 4,360 (1,394) 4,801 2,915 3,789             Purchase of fixed assets (3,602) (7,535) 467 (1,171) (1,134) Investment in affiliated 3,789 (505) 648 0 0 Other investing activities 1,074 305 0 0 0 Investing cashflows 1,261 (7,735) 1,114 (1,171) (1,134)             Payment of dividend (190) (336) (1,679) (1,119) (1,119) Equity Increase 1 39 0 0 0 Other debt financing (3,271) 3,066 1,062 157 (754) Internal financing cash flows (3,461) 2,769 (617) (962) (1,874)             External financing 0 6,360 0 0 0 Issuing debentures and CDs (0) 0 0 0 0 Borrowing from banks 0 6,360 0 0 0             Last year outstanding debt 12,728 11,041 15,678 10,379 9,597 This year outstanding debt 11,041 15,678 10,379 9,597 8,814 Source : BCP 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.kimengresearch.com.sg ). 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. 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