PTT Global Chemical:1QFY16earnings seen flat q-q

　　1QFY16 earnings to be flattish as aromatics likely outweigh weak performance in refineryand olefins businesses

　　We expect 1QFY16 net profit to grow slightly 2% q‐q to Bt4,768mn as aromatics businessappears to fare well on higher utilization rate and wider spread and PTTGC is expected torecord FX gains of Bt935, which seems to outweigh weak performance in refinery (lower GRMand stock losses) and olefins (PTTPE plant overhaul). Excluding stock loss and FX gains,normalized profit would drop 42% q‐q to Bt5,409mn.

　　Refinery business seems dull as: 1) utilization rate declined to 93% vs 99% in 4QFY15 due tounplanned three‐day overhaul (electricity system problem); 2) market GRM likely reduced toUS$4.8/barrel from US$6.2 after Jet‐Dubai and GO‐Dubai spreads weakened owing to mildcold weather, in addition to higher export from China and high US crude inventories—bothproducts accounted for 60% of PTTGC refining output; and 3) oil and NRV stock loss would beUS$1.0/barrel (or Bt641mn in total), down compared to US$2.5/barrel (Bt1,675mn) in4QFY15.

　　Aromatics business appears to fare the best across all PTTGC’s businesses. Utilization ratelikely increased to 87% vs 66% in 4QFY15 in a lack of overhaul of ARO2 while market P2F wasseemingly as high at US$200/ton with spreads of PX‐condensate up by US$18 to US$432/tonand BZ‐condensate up US$42 to US$272, thanks to an absence of new supply, strong demandfor stylenemonomer, and lower cost of condensate feedstock.

　　As for olefins and derivatives products, olefins utilization rate likely dropped to 81% vs 97% in4QFY15 due to the planned 39‐day overhaul of PTTPE, which caused utilization rate ofpolyethylene (PE) to decline to 89% from 103%. Additionally, its profitability seeminglydampened with HDPE price down by US$50 to US$1,103/ton, which we expect would pushEBITDA margin down to 20% from 22% in 4QFY15.

　　2QFY16 outlook flattish despite long‐term overhaul in refineries

　　Despite dull outlook in 1QFY16, earnings are expected to be flattish in the second quarter asPTTGC has planned a 63‐day overhaul in its refineries, which would cause utilization ratedown to 54% and aromatics utilization rate likely down to 85% (some feedstock come fromrefinery). However, olefins utilization rate is expected to return to normal level, and therebypushing running rate at polyethylene (PE) back to its usual level. Also, spreads of aromaticsand olefins are pointing to improvement.

　　FY16 target price of Bt70, ‘ACCUMULATE’ rating

　　The 1HFY16 earnings expected to be dull as olefins overhaul in 1QFY16 and refineriesschedule maintenance in 2QFY16. However, the improvement in earnings is expected to be in2HFY16 from return to its normal level of all business units. Yet shares of PTTGC rosesignificantly trading at limited upside, we thus downgrade our rating to ‘ACCUMULATE’ with atarget price of Bt70.