Introduction to Bangchak Corporation (BCP)

Bangchak Corporation (BCP), having acquired a 76.34% stake in ESSO in October 2023, has emerged as Thailand’s largest refinery. With a robust refining capacity of 294kbd, the company is a significant player in the energy sector. Its operations span across refined oil distribution through petrol stations and ventures into alternative energy like solar, wind, and biofuel. This diversification positions BCP strongly within the energy landscape.

Stock Overview and Performance

• Share Price: Bt35.50
• Target Price: Bt45.00
• Upside Potential: +20.0%
• Market Cap: Bt54,071.4m (US\$1,593.7m)
• 52-Week High/Low: Bt46.75/Bt31.50
• Major Shareholders: Thai NVDR (14.9%), Social Security Office (14.2%)

The company’s stock has shown resilience despite broader market challenges, supported by its strategic focus on diesel production and diversification into premium products and alternative energy. The recommendation remains a “Buy,” with a target price of Bt45.00.

4Q24 Performance Preview

Strong Recovery in Profitability

BCP is expected to report a net profit of Bt220m for 4Q24, a significant recovery from a net loss of Bt2.1b in 3Q24 and Bt977m in 4Q23. Excluding extraordinary items such as a Bt2.5b inventory loss, core profit is estimated to jump 124% quarter-on-quarter to Bt1.6b. This improvement is attributed to:

• Higher Gross Refinery Margin (GRM): Rising to US\$5.20/bbl in 4Q24 from US\$2.50/bbl in 3Q24.
• Increased Run Rate: Improved to 93%, benefitting from no maintenance shutdowns at the Bangchak Sriracha Refinery.

Key Operational Drivers

Several factors contributed to the positive outlook for 4Q24:

• The Singapore benchmark GRM rose from US\$3.50/bbl in 3Q24 to US\$5.20/bbl in 4Q24, driven by a US\$2.50/bbl increase in diesel spreads.
• Marketing margins improved from Bt0.77/litre in 3Q24 to Bt0.87/litre in 4Q24, helped by lower crude costs and higher sales of premium products.
• The biofuel business saw higher EBITDA contributions due to increased biodiesel sales and improved B100 margins.

Potential Impact of New Oil Pricing Structure

Thailand’s government is considering a shift to a “cost-plus” oil pricing system, which could cap refinery margins and affect profitability. However, this change is unlikely to materialize in the short term, offering BCP some respite.

Financial Outlook and Key Metrics

2024 and 2025 Projections

BCP’s core earnings for 2024 are forecasted at Bt5.8b, a 35% year-on-year decline, but the company is poised for a 22% growth in core profit in 2025, reaching Bt7.0b. This growth is expected to be driven by the commissioning of a 7kbd Sustainable Aviation Fuel (SAF) facility in 1Q25 and stable diesel spreads.

Key Financial Metrics

Environmental, Social, and Governance (ESG) Initiatives

Environmental Goals

BCP aims to achieve carbon neutrality by 2030 and net-zero emissions by 2050. Key initiatives include improving production efficiency and utilizing products that reduce emissions by 20% by 2024 and 30% by 2030.

Social Contributions

The company integrates social development into its business culture, engaging in sustainable practices and initiatives that benefit communities.

Governance Standards

BCP consistently receives “Excellent” corporate governance scores from the Thai Institute of Directors, highlighting its commitment to transparency and ethical practices.

Valuation and Recommendation

UOB Kay Hian maintains a “Buy” recommendation for Bangchak Corporation, with a target price of Bt45.00 based on Sum-of-the-Parts (SOTP) valuation. The stock is currently trading at 5.5x 2024F PE, offering an attractive entry point for long-term investors. Upcoming catalysts include the earnings announcement on February 20, 2025.