Thai Oil: Weaker 3Q24 Performance Due to Stock Losses and Lower GRM

UOB Kay Hian
October 10, 2024

Thai Oil (TOP TB), one of Thailand’s largest oil refiners, is expected to report a weaker financial performance in 3Q24 due to several challenges, including significant stock losses and a lower gross refining margin (GRM). These factors are putting pressure on the company’s profitability during the quarter. Despite these headwinds, Thai Oil remains focused on managing its operations efficiently and looking for opportunities to navigate these challenges in the longer term.

Lower Gross Refining Margin (GRM)

Thai Oil’s 3Q24 performance is anticipated to be negatively affected by a significant drop in its gross refining margin. The GRM, a key measure of profitability for refiners, is expected to decline due to lower product spreads, which have been impacted by softer demand for refined products and higher input costs. The weaker refining margin will directly affect Thai Oil’s revenue generation capabilities, as the company struggles to maintain its profitability amidst a volatile market environment.

The decline in demand for refined products, particularly in the wake of global economic uncertainties and fluctuating crude oil prices, has further contributed to the pressure on Thai Oil’s margins. While the company has taken steps to optimize its refining operations, the market environment remains challenging, with no immediate signs of improvement in GRM in the near term.

Significant Stock Losses

In addition to the lower GRM, Thai Oil is expected to incur significant stock losses during 3Q24. Stock losses occur when the value of the crude oil or refined products held in inventory decreases due to falling oil prices. The decline in global crude oil prices during the quarter has resulted in inventory devaluation, which will impact the company’s financial results.

Thai Oil has noted that the combination of lower oil prices and weakened product spreads has created an unfavorable market environment, leading to these stock losses. While stock losses are largely market-driven and beyond the company’s control, they have significantly weighed on Thai Oil’s profitability for the quarter.

Operational Efficiency and Cost Management

To mitigate the impact of lower GRM and stock losses, Thai Oil is focusing on improving operational efficiency and optimizing its cost structure. The company has implemented various initiatives to reduce operating costs, enhance energy efficiency, and optimize production processes. These efforts are aimed at preserving margins despite the challenging market conditions.

Thai Oil is also exploring ways to improve its product mix by focusing on higher-value products that could potentially provide better margins. The company remains committed to navigating the current challenges and positioning itself for a stronger recovery when market conditions improve.

Conclusion

Thai Oil’s 3Q24 performance is expected to be weaker due to significant stock losses and a lower gross refining margin, both of which have impacted the company’s profitability. Despite these challenges, Thai Oil is taking proactive steps to improve its operational efficiency and manage costs, aiming to mitigate the adverse effects of the current market environment. Investors should be mindful of the short-term headwinds but remain focused on Thai Oil’s long-term strategies and its ability to recover once market conditions stabilize.

UOB Kay Hian
October 10, 2024