Thai Oil’s CFP Project Delay: Challenges and Outlook for 2025 Recovery

In-Depth Analysis of Thai Oil Public Company Limited (TOP)

Broker: UOB Kay Hian

Date of Report: Friday, 15 November 2024

Company Overview

Thai Oil Public Company Limited (TOP) is a prominent oil refinery company. It specializes in producing oil-related products such as LPG, kerosene, fuel oil, and chemicals.

Stock Data and Performance

TOP is listed under the Energy sector with a Bloomberg ticker of TOP TB. The company has 2,233.8 million shares issued, a market capitalization of Bt111,133.3 million (approximately US\$3,150.5 million), and a 3-month average daily turnover of US\$15.6 million. The stock has experienced a 52-week high of Bt59.50 and a low of Bt46.50. The price performance over various periods is as follows:

1 month: -6.6%
3 months: -7.0%
6 months: -10.4%
1 year: -7.9%
Year-to-date: -7.4%

Major Shareholders

PTT: 49.1%
NVDR: 4.5%
HSBC (Singapore) Nominees Pte. Ltd.: 2.6%

Financial Metrics

For the fiscal year 2024, the company’s NAV per share is Bt77.98, and the net debt per share is Bt56.63.

Price Target and Recommendation

The report downgrades TOP to HOLD, with a new target price of Bt42.00, indicating a 2.44% upside from the current share price of Bt41.00. The previous target price was Bt60.00.

Key Updates and Project Delays

TOP provided updates on the Clean Fuel Project (CFP). The project is facing delays and increased expenses. Despite these challenges, TOP does not foresee any impairments or the need for a capital increase. The company is evaluating the impact of these delays and expenses and expects to provide more clarity by early 2025. The delay is primarily due to liquidity issues faced by main contractors, leading to subcontractor protests. The management is committed to resolving these issues and commencing the commercial operations of the CFP project as soon as possible.

Financial Highlights and Earnings Revision

Key financials for the years 2022 to 2026 are as follows:

Year	Net Turnover (Btm)	EBITDA (Btm)	Operating Profit (Btm)	Net Profit (Reported) (Btm)	Net Profit (Adjusted) (Btm)	EPS (Bt)	PE (x)	P/B (x)	EV/EBITDA (x)	Dividend Yield (%)	Net Margin (%)	Net Debt/Equity (%)	Interest Cover (x)	ROE (%)	Consensus Net Profit (Btm)	UOBKH/Consensus (x)
2022	529,589	44,387	42,024	32,668	27,791	12.4	3.3	0.6	4.6	6.3	6.2	84.4	12.8	24.5	–	–
2023	469,244	41,335	24,257	19,443	22,080	9.9	4.2	0.5	6.3	8.2	4.1	89.9	9.5	14.1	–	–
2024F	539,561	30,072	11,548	8,747	13,110	5.9	7.0	0.5	8.8	4.1	1.6	79.6	7.7	6.3	11,996	0.73
2025F	511,526	28,145	12,373	9,382	9,382	4.2	9.8	0.5	7.6	4.6	1.8	70.6	4.7	6.6	14,052	0.67
2026F	511,878	28,382	11,663	8,788	8,788	3.9	10.5	0.5	7.2	4.8	1.7	62.7	4.9	6.1	18,868	0.47

Project Challenges and Management Responses

The CFP project, which is over 97% complete, has been delayed due to subcontractor protests. These protests stem from liquidity issues faced by the main contractors, including Samsung E&A (Thailand), Petrofac South East Asia, and Saipem Singapore (UJV). TOP’s management is legally protecting the company’s rights and aims to reach a resolution by early 2025. In a worst-case scenario, if a new main contractor is required, the project may face further delays. However, management remains committed to starting commercial operations as soon as possible and has refuted any fake news regarding the project.

Key Financial Ratios and Metrics

For the fiscal years 2023 to 2026, key financial ratios and metrics include EBITDA margin, pre-tax margin, net margin, ROA, ROE, turnover growth, EBITDA growth, pre-tax profit growth, net profit growth, EPS growth, debt to total capital, debt to equity, net debt to equity, and interest cover. The detailed metrics are as follows:

Year	EBITDA Margin (%)	Pre-tax Margin (%)	Net Margin (%)	ROA (%)	ROE (%)	Turnover Growth (%)	EBITDA Growth (%)	Pre-tax Profit Growth (%)	Net Profit Growth (%)	EPS Growth (%)	Debt to Total Capital (%)	Debt to Equity (%)	Net Debt to Equity (%)	Interest Cover (x)
2023	8.8	5.7	4.1	11.6	11.6	-11.4	-21.4	-42.3	-40.5	-20.5	106.5	106.8	89.9	9.5
2024F	6.4	3.4	1.9	5.2	5.2	15.0	-27.2	-40.8	-55.0	-40.6	102.3	102.9	79.6	7.7
2025F	6.0	2.6	2.0	5.3	5.3	-5.2	-6.4	-22.2	7.3	-28.4	96.0	96.9	70.6	4.7
2026F	6.0	2.5	1.9	4.9	4.9	0.1	0.8	-5.7	-6.3	-6.3	90.6	91.6	62.7	4.9

Core Profit and Stock Impact

TOP’s core profit is expected to improve in 4Q24, driven by reduced stock loss and an improved quarter-to-date gross refining margin (GRM) for 4Q24, reaching US\$4.43/bbl. The rise in GRM is attributed to demand recovery during the winter season, boosting gas oil and jet fuel GRM by 6.00% and 12.70% qoq, respectively. These positive factors are expected to counterbalance the decline in aromatics spread.

Environmental, Social, and Governance (ESG) Initiatives

TOP is committed to several ESG initiatives:

Environmental: The company aims to reduce greenhouse gas (GHG) emissions by 15% in 2035 from the base year of 2026, achieve carbon neutrality by 2050, and net zero GHG emissions by 2060 through various initiatives.
Social: TOP focuses on creating social value by improving the quality of life in society, aligning with its strategic direction to become a petrochemical and innovative business, and contributing to net zero GHG emissions. The company also aims to maintain a community engagement score of 90% or above and support zero GHG emissions through forest conservation, reforestation, and afforestation initiatives.
Governance: TOP strives for zero cases of non-compliance and fraud incidents, ensuring adherence to laws, regulations, and the company’s code of conduct. The company also aims for recognition in good corporate governance.

Conclusion and Recommendation

Despite the expected recovery in 4Q24 net profit, the uncertainty surrounding the CFP project remains a significant concern. As a result, the recommendation is to downgrade to HOLD with a new target price of Bt42.00. Investors are advised to consider switching to other top picks in the oil & gas sector, such as Bangchak Corporation (BCP TB/Target: Bt45.00) and Indorama Ventures (IVL TB/Target: Bt32.00).