Overview of Thai Oil PCL (TOP TB)

Thai Oil PCL (TOP) operates as one of Thailand’s leading oil refinery companies, producing a range of petroleum products such as LPG, kerosene, fuel oil, and various chemicals. The company remains a key player within the energy sector, with a strong connection to its primary shareholder, PTT, which holds a 49.1% stake.

As of the report’s publication, Thai Oil’s share price is Bt26.50, with a target price set at Bt27.00, offering a modest upside potential of 1.89%. However, the “Hold” recommendation reflects the challenges tied to operating margins, project delays, and a less favorable industry outlook in the near term.

4Q24 Financial Performance Highlights

The fourth quarter of 2024 is anticipated to showcase a recovery in Thai Oil’s financial performance. A net profit of Bt2.3 billion is projected, rebounding from a net loss of Bt4.2 billion in the third quarter. This positive shift is attributed to improved gross refinery margins (GRM) and the absence of significant stock losses that impacted the previous quarter.

Key metrics forecasted for 4Q24 include:

• Revenue: Bt128.1 billion, a 15% quarter-on-quarter (qoq) increase.
• EBITDA: Bt5.8 billion, reflecting a 98% qoq growth.
• Core Profit: Bt2.85 billion, up 96% qoq.
• Net Profit Margin: 1.8%, compared to -3.8% in 3Q24.

Market Drivers and Challenges

Thai Oil’s market GRM is expected to rise to US\$5.1 per barrel in 4Q24, up from US\$3.7 per barrel in 3Q24. This improvement is driven by seasonal demand recovery in middle distillates. Additionally, contributions from linear alkylbenzenes (LAB) and lube base oil offset the decline in aromatics spreads, particularly paraxylene (Px) and benzene (Bz), which dropped by 36% and 26% respectively qoq in 4Q24.

Despite these gains, challenges persist. The aromatics spreads are expected to weaken further in 1Q25 due to sluggish demand in downstream industries such as purified terephthalic acid (PTA) and styrene monomer (SM). Moreover, inventory adjustments and project delays in China remain key pressure points.

Clean Fuel Project (CFP) Delays and Impact

The Clean Fuel Project (CFP), a cornerstone of Thai Oil’s long-term strategy, has faced significant delays. The company is now targeting additional investment of US\$1.78 billion and has revised the production timeline:

• Crude Distillation Unit 4 (CDU#4): Shifted to 2Q27 from 1Q25.
• Residue Hydrocracking Unit (RHCU): Pushed to 2Q28 from 2H25.

The delays in CFP have dampened investor sentiment, leaving a persistent overhang on Thai Oil’s stock price.

2024-2026 Financial Projections

Thai Oil’s financial outlook reflects both challenges and opportunities. Key forecasts include:

Revenue and Profitability

• Net Turnover: Expected to grow modestly from Bt482.4 billion in 2024 to Bt511.9 billion in 2026.
• EBITDA Margin: Forecasted to decline from 8.8% in 2023 to 6.1% in 2026.
• Net Profit: Projected to drop 51% year-on-year (yoy) to Bt9.5 billion in 2024, followed by a slight decline to Bt8.8 billion in 2026.

Leverage and Dividends

• Net Debt-to-Equity Ratio: Expected to improve from 89.9% in 2023 to 61.8% by 2026.
• Dividend Yield: Estimated at 6.5% in 2024, gradually increasing to 7.6% in 2026.

Environmental, Social, and Governance (ESG) Initiatives

Thai Oil has outlined a robust ESG strategy, aiming for net-zero greenhouse gas (GHG) emissions by 2060. Key highlights include:

Environmental

• Reduce GHG emissions by 15% by 2035 (base year: 2026).
• Promote reforestation and afforestation through nature-based solutions.

Social

• Maintain a community engagement score of 90% or higher.
• Develop societal quality of life initiatives aligned with the company’s strategic goals.

Governance

• Commit to zero cases of non-compliance and fraud.
• Achieve recognition for good corporate governance practices.

Valuation and Recommendation

The recommendation for Thai Oil remains “Hold,” with a target price of Bt27.00, based on a forward PE of 7x. The delayed CFP continues to weigh on the stock’s appeal. Investors seeking alternatives are advised to consider Bangchak Corporation (BCP) and Indorama Ventures (IVL), with target prices of Bt45.00 and Bt32.00 respectively, which are highlighted as top picks in the oil and gas sector.