Thai Equity - Bottom-up - Equities, Pi Securities PCL, Thailand

Pi Research

Thai Equity - Bottom-up - Equities

Leading, full-service investment firm in Thailand

Pi Securities PCL, Thailand

Pi Securities is a well known securities company with 40 years experience in the industry, serving more than 60,000 clients. We offer one - stop service providing full range of financial products and services including extensive Brokerage, Proprietary Trading (Equities and Bonds), Advisory Services, Structured Products.

Moreover, our new research team tailored for institutional clients to focus on mid to small cap of Thai equities and trading strategies. Our services offered to our premium clients also include arrangement of company or site visits to with the managements of Thai listed companies.

Note: Effective on 1 March 2022, Country Group Securities PCL changed its name to Pi Securities

Equity Bottom-Up

<p><strong>Yesterday analyst meeting came out in positive tone. We see the acquisition of 20% stake in Oman block 61 gas project will aid PTTEP’s sales volume growth and improve GPM  beginning 2021.</strong></p><div>• Expect 1Q21 earnings to soften YoY mainly due to decline in average selling price. While improve Q0Q as there will be no significant losses from financial instrument and asset impairment compared to 4Q20.</div><div></div><div>• The Oman Block 61 gas project is anticipated to be the new growth driver for PTTEP given 1) Increase in volume sales by 10% 2)  higher EBITDA margin, and 3)substantial reserve addition (0.5 to 1 year).</div><div></div><div>• Bright 2021 earnings outlook as the new investment in Oman will increase the volume sales to 398 kBOED (+12% YoY, and 6% higher than previous guidance of 375 kBOED) and improving GPM from lower unit cost (-6% YoY)</div><p></p><p><strong>We maintain our BUY  recommendation, while revise up the target price to Bt131 (from previous Bt125) on the back of the earnings revision incorporating Oman Block 61 project. Our valuation is derived using DCF methodology (WACC 9.4%, TG 2%), implying 16x PE’21.</strong></p>

Yesterday analyst meeting came out in positive tone. We see the acquisition of 20% stake in Oman block 61 gas project will aid PTTEP’s sales volume growth and improve GPM  beginning 2021.• Expect 1Q21 earnings to soften YoY mainly due to decline in average selling price. While improve Q0Q as there will be no significant losses from financial instrument and asset impairment compared to 4Q20.• The Oman Block 61 gas project is anticipated to be the new growth driver for PTTEP given 1) Increase in volume sales by 10% 2)  higher EBITDA margin, and 3)substantial reserve addition (0.5 to 1 year).• Bright 2021 earnings outlook as the new investment in Oman will increase the volume sales to 398 kBOED (+12% YoY, and 6% higher than previous guidance of 375 kBOED) and improving GPM from lower unit cost (-6% YoY)We maintain our BUY  recommendation, while revise up the target price to Bt131 (from previous Bt125) on the back of the earnings revision incorporating Oman Block 61 project. Our valuation is derived using DCF methodology (WACC 9.4%, TG 2%), implying 16x PE’21.

PTTEP: Oman Block 61 Gas Project to Be New Growth Driver

Thematic (Sector/Industry)

<p><strong>Crude: Bright E&amp;P business performance from recovering crude price</strong></p><ul><li>We expect the widespread deployment of COVID-19 vaccines, continued support from OPEC+ on regulating the crude supply, and post COVID-19 demand spike in crude products (Jet fuel, gasoline, diesel etc.) will support the Brent crude to continue the upward rally in 2021. <strong> PTTEP is our top pick</strong>, the E&amp;P business will most benefit from recovering crude price.</li></ul><p><strong>Refinery: Improving product demand to drive GRM</strong></p><ul><li>Thai refiners’ share prices are trading at 10-to-20% discount to their historical PBV multiples mainly due to the COVID-19 impact, which dragged the GRM to negative territory along with huge inventory loss. We have a positive view on 2021 refinery performance and expect the GRM to gradually pick up each quarter on the back of recovering products spreads (especially Jet fuel). <strong>TOP is our top pick </strong>among refineries considering the cheap valuation (0.9x PBV’21, 20% below its 5 year trading average), and upside from current share price (+18%).</li></ul><p><strong>Petrochemicals: Benefit from global recovery</strong></p><ul><li>We foresee a strong recovery in petrochemicals to continue in 1H21. Olefins (HDPE, PP) has already recovered back to its 5-year average ahead of Chinese New Year. Meanwhile, aromatics (PX, BZ) to be supported by growth in textile and automotive industry and new capacity in downstream products (PTA). <strong>PTTGC is our top pick</strong> as overall businesses benefit from petrochemical upswing. The company will also realize 10% more capacity in PO/Polyols unit by 1Q21.</li></ul><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/184/642/original/SMK1.png?1611645077" class="editor-image img-responsive" data-smartkarma-image-id="184642"></figure><p style="text-align: center;"><strong>Valuation Summary*</strong></p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/184/643/original/Picture1.jpg?1611645252" class="editor-image img-responsive" data-smartkarma-image-id="184643"></figure></section><p style="text-align: center;"><em>Source: CGS Research, Company data, SET</em></p></section>

Crude: Bright E&amp;P business performance from recovering crude priceWe expect the widespread deployment of COVID-19 vaccines, continued support from OPEC+ on regulating the crude supply, and post COVID-19 demand spike in crude products (Jet fuel, gasoline, diesel etc.) will support the Brent crude to continue the upward rally in 2021.  PTTEP is our top pick, the E&amp;P business will most benefit from recovering crude price.Refinery: Improving product demand to drive GRMThai refiners’ share prices are trading at 10-to-20% discount to their historical PBV multiples mainly due to the COVID-19 impact, which dragged the GRM to negative territory along with huge inventory loss. We have a positive view on 2021 refinery performance and expect the GRM to gradually pick up each quarter on the back of recovering products spreads (especially Jet fuel). TOP is our top pick among refineries considering the cheap valuation (0.9x PBV’21, 20% below its 5 year trading average), and upside from current share price (+18%).Petrochemicals: Benefit from global recoveryWe foresee a strong recovery in petrochemicals to continue in 1H21. Olefins (HDPE, PP) has already recovered back to its 5-year average ahead of Chinese New Year. Meanwhile, aromatics (PX, BZ) to be supported by growth in textile and automotive industry and new capacity in downstream products (PTA). PTTGC is our top pick as overall businesses benefit from petrochemical upswing. The company will also realize 10% more capacity in PO/Polyols unit by 1Q21.Valuation Summary*
Source: CGS Research, Company data, SET

Energy Sector : Overweight- Oil Demand Recovery to Drive 2021 Earnings

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>The SET50 Index is one of the very few indices that is still weighted by full market cap. Stocks need to have a minimum free float of 20% to be eligible for index inclusion but the free float is not used to determine the weight of the stock in the index.</p><p>This had led to stocks with low free floats having an inordinately high weight in the index. The most recent case in point was <a href="https://www.smartkarma.com/entities/delta-electronics-thai-pcl" target="_blank" data-smartkarma-citation="entities:20912:1" rel="noopener">Delta Electronics Thai (DELTA TB)</a> - the stock was an inclusion in the SET50 index at the December review. DELTA is now the third largest stock in the index with a 6.07% weighting, even though the SET free float of the stock is only 22.35%. The stock has jumped 1000% over the last year.</p><p>Media reports now indicate that there are changes brewing that could result in the SET revising the calculation methodology to more accurately determine the free float of stocks, and a change to the calculation methodology of the SET50 Index that would see it move from a full market cap weighted index to a free float market cap weighted index.</p><p>In this Insight, we take a look at the stocks that would be affected by the changes and the impact of passive fund trading on the stocks.</p>

The SET50 Index is one of the very few indices that is still weighted by full market cap. Stocks need to have a minimum free float of 20% to be eligible for index inclusion but the free float is not used to determine the weight of the stock in the index.This had led to stocks with low free floats having an inordinately high weight in the index. The most recent case in point was Delta Electronics Thai (DELTA TB) - the stock was an inclusion in the SET50 index at the December review. DELTA is now the third largest stock in the index with a 6.07% weighting, even though the SET free float of the stock is only 22.35%. The stock has jumped 1000% over the last year.Media reports now indicate that there are changes brewing that could result in the SET revising the calculation methodology to more accurately determine the free float of stocks, and a change to the calculation methodology of the SET50 Index that would see it move from a full market cap weighted index to a free float market cap weighted index.In this Insight, we take a look at the stocks that would be affected by the changes and the impact of passive fund trading on the stocks.

SET50 Index: Change to Free Float Weighting In the Works?

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

<p>As we highlighted in last week’s <em>Int’l Compass</em>, the weight of the evidence suggests commodities are in the early stages of a new secular bull market. Global <strong>Materials </strong>remains a favorite Sector overweight and we believe outperformance is likely to continue considering the Sector’s long-term bullish RS reversal. Additionally, we are upgrading equal-weighted <strong>Energy </strong>to overweight due to bullish price and RS inflections -- add exposure with a focus on small- and mid-caps.</p>

As we highlighted in last week’s Int’l Compass, the weight of the evidence suggests commodities are in the early stages of a new secular bull market. Global Materials remains a favorite Sector overweight and we believe outperformance is likely to continue considering the Sector’s long-term bullish RS reversal. Additionally, we are upgrading equal-weighted Energy to overweight due to bullish price and RS inflections -- add exposure with a focus on small- and mid-caps.

Global Commodity-Related Equity Sectors In Secular Bull

<p><strong>The stock outperformed the SET index by +15% in last two months on the back of recovering crude price, and surpassed our previous target price of Bt108. We expect PTTEP to continue the rally as the reference Dubai crude price is anticipated to average at 55 US$/BBL in 2021 (+30 YoY).</strong></p><div>• Expect weak 4Q20 earnings of Bt5.5bn (-53% YoY, -23% QoQ) on the back of lower average selling price (ASP) and hedging loss.</div><div></div><div>• Expect a 22% EPS growth in 2021E from improving volume sales and recovering crude price.</div><div></div><div>• Expect Brent crude’s upward rally in 2021 backed by production cut of OPEC+ and widespread vaccine deployment.</div><p></p><p><strong>We maintain our BUY  recommendation, while revise up the target price to Bt125 (from previous Bt108) on the back of the earnings revision. Our valuation is derived using DCF methodology (WACC 9.4%, TG 2%), implying 16.5x PE’21.</strong></p>

The stock outperformed the SET index by +15% in last two months on the back of recovering crude price, and surpassed our previous target price of Bt108. We expect PTTEP to continue the rally as the reference Dubai crude price is anticipated to average at 55 US$/BBL in 2021 (+30 YoY).• Expect weak 4Q20 earnings of Bt5.5bn (-53% YoY, -23% QoQ) on the back of lower average selling price (ASP) and hedging loss.• Expect a 22% EPS growth in 2021E from improving volume sales and recovering crude price.• Expect Brent crude’s upward rally in 2021 backed by production cut of OPEC+ and widespread vaccine deployment.We maintain our BUY  recommendation, while revise up the target price to Bt125 (from previous Bt108) on the back of the earnings revision. Our valuation is derived using DCF methodology (WACC 9.4%, TG 2%), implying 16.5x PE’21.

PTTEP: Bright 2021 Earnings Outlook from Recovering Crude Price

Thailand

PTT Exploration and Production Public Company Limited explores for crude oil and natural gas, develops fields for production, and produces oil and natural gas. The Company is a subsidiary of the Petroleum Authority of Thailand.

PTT Exploration & Production P (PTTEP-R TB)

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PTT Exploration & Production P (PTTEP-R TB)

PTTEP: Oman Block 61 Gas Project to Be New Growth Driver

Yesterday analyst meeting came out in positive tone. We see the acquisition of 20% stake in Oman block 61 gas project will aid PTTEP’s sales volume...

Pi Securities PCL, Thailand

Energy Sector : Overweight- Oil Demand Recovery to Drive 2021 Earnings

Energy Sector : Overweight- Oil demand recovery to drive 2021 earnings. We expect bright E&P business performance from recovering crude price, and...

Pi Securities PCL, Thailand

SET50 Index: Change to Free Float Weighting In the Works?

There is a strong possibility that the SET revises the calculation methodology to more accurately determine the free float of stocks, and changes...

Brian Freitas

PTTEP: Bright 2021 Earnings Outlook from Recovering Crude Price

The stock outperformed the SET index by +15% in last two months on the back of recovering crude price, and surpassed our previous target price of...

Pi Securities PCL, Thailand

Price Gauge

52-week Range

Market Cap (USDm)

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PTTEP: Oman Block 61 Gas Project to Be New Growth Driver

Yesterday analyst meeting came out in positive tone. We see the acquisition of 20% stake in Oman block 61 gas project will aid PTTEP’s sales volume...

Pi Securities PCL, Thailand

Energy Sector : Overweight- Oil Demand Recovery to Drive 2021 Earnings

Energy Sector : Overweight- Oil demand recovery to drive 2021 earnings. We expect bright E&P business performance from recovering crude price, and...

Pi Securities PCL, Thailand

SET50 Index: Change to Free Float Weighting In the Works?

There is a strong possibility that the SET revises the calculation methodology to more accurately determine the free float of stocks, and changes...

Brian Freitas

Global Commodity-Related Equity Sectors In Secular Bull

We believe commodities are in the early stages of a new secular bull market. Global Materials & Energy remain our favorite Sector overweights - add...

Vermilion Research

PTTEP: Bright 2021 Earnings Outlook from Recovering Crude Price

The stock outperformed the SET index by +15% in last two months on the back of recovering crude price, and surpassed our previous target price of...

Pi Securities PCL, Thailand