PTT Global Chemical: Chemical spread uptrend extended
■ Wider PE-ethane spreads should lead to EBITDA margin expansion.
■ PTT Global Chemical should see more tailwinds from strong prices for propylene derivatives. Asian PE prices supported by strong demand Asian polyethylene (PE) prices were still on the uptrend in early-Apr 21, especially low density polyethylene (LDPE), the price of which increased sharply to US$1,575/t on a supply outage in the Middle East and resilient demand in Asia.
We believe absolute PE prices should remain elevated throughout 2Q21F, supported by higher oil prices, which should prompt plastic converters and speculators to restock PE resins in large quantities.
Meanwhile, PTTGC’s ethane cost is somewhat sticky and does not move up at the same pace as PE prices, leading to a wider olefins EBITDA margin of 17% in 2021F from 13% in 2020.
We expect PTTGC’s olefins EBITDA to improve by yoy in 2021F. Leveraging on propylene derivative chain PTTGC has phenol and Bis-phenol A capacity of 500ktpa and 150ktpa, respectively. Asian phenol spread surged to US$430/t during Mar-Apr 21 from the 4Q20 average of US$350/t on restocking demand and tight supply.
The Bis-phenol A (BPA) spread reached a 10-year high of US$2,100/t in early-Apr 21 on supply constraints and lower supply addition relative to downstream polycarbonate (PC).
We estimate that every US$100/t increase in the phenol and BPA spread lifts our 2021F EPS forecast by 10.7%. PTTGC holds a 50% stake in PTT Asahi, which has acrylonitrile (AN) capacity of 200ktpa. Strong demand from the acrylic fibre industry drove the AN-propylene spread to US$1,480/t from US$192/t in 4Q20 and US$728/t in 1Q21. We estimate that every US$100/t increase in AN spread raises our 2021F EPS forecast by 2.0%. New naphtha cracker has started up According to IHS, PTTGC’s new naphtha cracker of 00ktpa started production in Mar 21.
With no PE derivative expansion, PTTGC will need to sell additional ethylene in the merchant market to capture the strong spread of US$500/t seen in early-Apr 21. PTTGC also started up its propylene oxide (PO) unit, which has total capacity of 200ktpa, in early-Jan 2021. PO is the precursor to polyol, which is used for the production of polyurethane (PU).
We believe PO price should be partly supported by strong downstream demand for PU, which is the material used to produce cold storage boxes for Covid-19 vaccine distribution. Raise EPS forecasts, reiterate Add We raise PTTGC’s 2021-2023F EPS forecasts by 2-8% on higher chemical spreads and refinery inventory gain assumptions. Accordingly, we revise up PTTGC’s target price to THB79, based on the 2021F target P/BV of 1.17x (2011-2020 average), and reiterate our Add rating. A near-term rerating catalyst is higher-than-expected PE-naphtha spreads. A downside risk is lower-than-expected gross refining margin.
– By CIMB Bank Research
