1
31 Oct 2014
Initiate Coverage: BCP
The Bangchak Petroleum PCL (BCP)
Buy for diversification benefits
We initiate our coverage of BCP with a BUY recommendation and target price
of Bt38.10. We believe BCP’s strategy to diversify into E&P petroleum and
renewable energy businesses should help reduce the fluctuation of and
dependency on its traditional refinery & petroleum business. As a result, the
outlook for its EBITDA from 2014 onward is bright. Our target price offers an
implied upside of 14.6% and estimated dividend yields of 3.7% for 2014 and
4.2% for 2015. We have not factored in the potential benefits from the E&P
business in our valuation.
Business diversification to reduce dependency on traditional business
BCP has set a long-term strategy to diversify into other energy businesses, particularly
green energy, in order to reduce its dependency on, and fluctuations in, its traditional
oil business. BCP started investing in biofuel to promote the alternative energy theme
in its retail business, subsequently invested in a solar farm to secure high stream
income, and recently invested in an upstream E&P business. The benefits of its biofuel
and solar businesses have already been seen and are expected to continue, while the
E&P business will strengthen crude supply for its refinery operations and smooth out
its highly fluctuating profit margin in the longer term.
Foresee EBITDA remaining at a high level from this year onward
We forecast adjusted EBITDA to increase by 39.6% YoY to Bt9.2bn in 2014, primarily
due to the start-up of the last-phase of its 48-MW solar farm project in April 2014. For
2015, its first full-year of operations for all 118-MW solar power generation units should
help drive EBITDA up 8.0% YoY to Bt9.9bn. Moreover, the company will benefit from
the recovery in the utilization rate of its refineries after the annual turnaround
maintenance in 2014. Looking ahead, the benefits of the 3E Project should begin
having a positive effect on BCP’s refinery efficiency and utilization in 2016, which would
also increase the refining margin and EBITDA.
Initiate with a BUY recommendation and 2015 fair value at Bt38.10
We derived our target price for BCP using EV/adjusted EBITDA multiple at 7.5x, which
is the arithmetic mean of the last three years. We believe BCP deserves to trade at a
premium to its refiner peers thanks to the diversification strategy. Our 2015 target price
of Bt38.10 offers an upside of 12.9% from the current price and a dividend yield of
4.2%. Meanwhile, there is potential upside from E&P benefits which we have not
factored in our valuation. BUY.
BUY
Current Price Bt33.25
Target Price 2015 Bt38.10
Upside/(Downside) +14.6%
Consensus Bt37.80
Sector Energy
Paid-up Shares (mn.shares) 1,377
Market Capitalization (Btmn) 45,783
Free Float (%) 62.76
Major Shareholders (%)
1. PTT PCL 27.22
2. Ministry of Finance 9.98
Financial Highlights
Source: SET, AWS estimates
Mr. Napat Siworapongpun License No: 49234
Tel: 02 680 5094
E-mail: [email protected]
2013 2014E 2015E 2016E
Revenue (Btmn) 186,514 191,258 202,688 212,531
EBITDA 9,348 8,992 9,913 11,631
Adj. EBITDA 6,574 9,179 9,913 11,631
Net Profit (Btmn) 4,653 4,179 4,844 6,064
EPS (Bt) 3.38 3.04 3.52 4.40
EPS Grow th (%) 8.9 -10.2 15.9 25.2
P/E (x) 9.8 11.0 9.5 7.5
P/BV (x) 1.3 1.2 1.1 1.0
DPS (Bt) 1.35 1.21 1.41 1.76
Div. Yield (%) 4.1 3.7 4.2 5.3
2
31 Oct 2014
Initiate Coverage: BCP
Diversifying to green energy and upstream petroleum business line
Apart from its traditional core businesses of 120KBD complex refineries and more-
than-1,000 oil service stations in Thailand, BCP has been interested in alternative
investments related to energy, especially green energy, to reduce its dependency on,
and fluctuations in, the oil business. In 2010, BCP invested in biodiesel and ethanol to
expand its sales proportion of green alternative fuels, such as B5, Gasohol 91,
Gasohol 95, E20 and E85 through its nationwide network of service stations. In 2011-
2013, the company invested in solar power plants, with total capacity of 118 MW. This
was to secure cash flow income in the long run. All of the power generation units have
been commercially operational since April 2014. More recently, BCP invested in an
E&P petroleum offshore project located near the Philippines and Indonesia, which we
believe would help strengthen the crude oil supply for its refinery in the long term and
smooth the fluctuating margin in its product line chain.
Figure 1: BCP’s alternative investment timeline
Source: Company data
Figure 2: 2009 EBITDA breakdown by business Figure 3: 20013 EBITDA breakdown by business
Source: Company data Source: Company data
Refinery & biofuel
business86%
Marketing business
14%
EBITDA breakdown
Refinery & biofuel
business70%
Marketing business
15%
Solar farm business
15%
EBITDA breakdown
Invested in Biodiesel plants, 360,000 litres per day capacity
2009 2010 2011 2012 2013 2014
Invested in solar power plants, 118 MW total capacity
Invested in Ethanol plants, 400,000 litres per day capacity
Invested in additional Ethanol plants, 150,000 litres per day capacity
Invested in E&P business
To reduce dependency on traditional business.
3
31 Oct 2014
Initiate Coverage: BCP
Green fuels to increase profit in marketing business
BCP has promoted alternative energy in order to stand out in the competitive market.
The company blends ethanol and biodiesel with its gasoline and diesel product,
respectively, to obtain 91-octane gasohol, 95-octane gasohol, E20 and E85, together
with Super Power D, a B5 product. To enhance the security of ethanol and biodiesel
supplies to accommodate its sales expansion plan, BCP invested in biodiesel plants,
360,000 litres per day installed capacity, and acquired common shares in Ubon Bio-
Ethanol (UBE), 400,000 litres a day capacity of ethanol production.
In 2012-2013, the company achieved its goal as total sales revenue from all marketing
channels increased, and the market share for E85 gasohol ranked first in 2013 while
maintaining the No. 2 share of all gasoline sales and the No. 3 share of all fuels
through service stations. The high marketing margins of gasohol & gasoline products
along with higher sales volume from continual sales expansion of E20 and E85 kept
profits at a high level throughout 1H14.
We believe BCP’s sales volume growth through marketing channels would continue
on an uptrend going forward. We estimate growth at 4.1% p.a. supported by its
promotion of the green energy theme and increased crude run for its refineries.
Meanwhile, the retail marketing margin should conservatively stand at around Bt1.0
per litre, recovering from the low margin in 2013.
Figure 4: Retail sales volume per month (M.litres) Figure 5: Retail marketing margin (Baht/litre)
Source: Company data, AWS estimate Source: Company data, AWS estimate
201 205223
245 238260 254 263
276
0
50
100
150
200
250
300
2010 2011 2012 2013 1Q14 2Q14 2014F 2015F 2016F
Retail sales volume per month (MMlitres)
0.800.75
0.87
0.73
0.95
1.041.00 1.00 1.00
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2010 2011 2012 2013 1Q14 2Q14 2014F 2015F 2016F
Retail marketing margin (Baht/litre)
As the government requested, BCP used ethanol from cassava instead of cheaper molasses.
4
31 Oct 2014
Initiate Coverage: BCP
Enhanced refinery performance to sustain the growth
In order to serve its expanding retail business and to increase its competitiveness,
BCP has implemented “3E Project: Efficiency, Energy, and Environment” to increase
the efficiency of its refinery, with a total investment cost of Bt7.0bn through 2018. The
project can raise the level of crude run and also improve BCP’s gross refining margin.
Details and benefits of the project can be seen in Figure 8.
Figure 8: Details of the 3E Project
Source: Company data
Detail Completion Target Benefits
New CDU - Higher level of crude run: 120+ KBD (+20%)
Replace the 80-KBD CDU w ith a Completed in 2Q14 - Enhancing GRM by US$1-2/bbl
new 100-KBD CDU - Cost and energy saving
- Low er emission
Cogeneration power plant - To reduce electricity cost
Build a Co-generation pow er plant 2016
(10-20 MW)
Debottlenecking - Higher level of crude run
Debottleneck HCU, VDU and KTU 2017
for the higher level of crude run
New CCR - To increase reformate liquid yield
Install a new Continuous Catalyst 2018 - To reduce LPG output
Regeneration unit
Figure 6: Gasoline retail market share as of 2013 Figure 7: All products retail market share, as of 2013
Source: EPPO, Company data Source: EPPO, Company data
38.9%
17.7%
12.7%
12.1%
18.6%
Gasoline Retail Market Share
PTT BCP ESSO Shell Others
38.2%
15.1%
14.8%
12.7%
19.2%
All product Retail Market Share
PTT ESSO BCP Shell Others
5
31 Oct 2014
Initiate Coverage: BCP
Solar farms help deliver more stable earnings than peers
BCP entered the solar power business in 2011 and invested in solar power plants
contracting PPA with EGAT for 118 MW of capacity. All of its solar power generation
units have been commercially operational since April 2014 and have consistently
generated stable electricity. All projects are subsidized with an incentive adder rate of
Bt8.0 per kWh for 10 years, which should secure high and stable cash flow income
through the next 10 years. As a result, BCP should generate more stable earnings
than other refinery companies as these certain earnings should help significantly
cushion against the volatility of its refinery business, especially the crude inventory
gains/losses, which should make the company more attractive than its peers. We
estimate BCP’s solar power business to contribute around 28% of its total EBITDA or
Bt2.7bn in 2015. Moreover, BCP is in the due diligence process for expanding its
investment in solar business. Solar farms in Japan and the new solar farm scheme of
the government are being looked at by BCP.
Figure 9: Solar power business
Source: Company data, AWS estimates
Diversifying into upstream E&P business
In July, BCP announced the acquisition of a 19.66% stake in Nido Petroleum, an
Australian-based E&P company which explores and produces oil and gas in South
East Asia with 2P reserves of 5.8mn barrels. Furthermore, BCP has undertaken the
tender offer process to purchase all of Nido’s remaining shares. The total deal under
the share purchase agreement and the offer are not expected to exceed AUD120.4mn
(around Bt3.6bn). Currently, BCP has obtained approval for the offer from Australia’s
Foreign Investment Review Board and achieved a relevant interest of 81.41% of
Nido’s total paid-up shares.
BCP’s investment in upstream oil makes sense as it should smooth the fluctuating
margin of its product line chain, as well as being a new source of future profit. It would
also help strengthen the long-term crude oil supply for BCP’s refineries. This should
be a good entry in the E&P business and allow BCP to study the business and
procedures of Nido so it can do future E&P projects by itself. However, we will not
Phase 1 Ayutthaya 2012 8.0 38 747
Phase 2 Ayutthaya, Chaiyaphum 2013 8.0 32 857
Phase 3 Eastern & North Eastern Apr-14 8.0 48 1,113
Total 118 2,717
Project Location CODAdder
(Bt/kw h)
PPA capacity
(MW)
2015F EBITDA
(Btmn)
6
31 Oct 2014
Initiate Coverage: BCP
factor any benefits from this new business in our projection unless the tender offer
deal is officially completed.
Strong financial position to support investment plan
Given BCP’s low debt-to-equity ratio of 0.60x and net-debt-to-equity ratio of 0.41x in
2013 along with the latest Bt10.0bn debenture issuance in early 2014, we believe that
the company can pursue its investment plans without the need for a fresh capital call
in the foreseeable future. Note that we still have not include the E&P investment in our
forecast.
Figure 10: Interest bearing debt and D/E ratio
Source: Company data, AWS estimates
Figure 11: BCP’s Investment Plan
Source: Company data
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2011 2012 2013 2014F 2015F
Interest bearing debt and D/E ratio
Interset bearing debt IBD to equity ratio
Btmn x
Invesetment plan (Btmn) Total 2014F 2015F 2016F 2017F 2018F
Refinery business
1) Normal CAPEX 8,750 1,900 1,650 1,950 1,200 2,050
2) New CDU 400 400
3) 3E Project 7,000 280 1,550 1,890 2,460 820
Marketing business
1) Normal CAPEX 3,950 750 800 800 800 800
2) Netw ork Expansion 4,300 700 900 900 900 900
Solar Power Plant Phase 3 2,550 2,550
Biodiesel Plant Phase 2 1,800 840 960
Ethanol (BCP Bioethanol) 765 765
E&P Investment (NIDO) 3,600 3,600
Total 33,115 11,785 5,860 5,540 5,360 4,570
7
31 Oct 2014
Initiate Coverage: BCP
Foresee EBITDA staying high from this year onward
We forecast adjusted EBITDA in 2014 to increase 39.6% YoY to Bt9.2bn, mostly due
to the start-up of the last-phase of the 48-MW solar farm project in April 2014. In 2015,
BCP will recognize full-year operations of all 118-MW of its solar power generation
units for the first time, and this should help drive EBITDA up 8.0% YoY to Bt9.9bn
Moreover, the company will benefit from the recovery in the utilization rate of its
refineries after the annual turnaround maintenance in 2014. Looking ahead, the
benefits from the 3E Project should begin having a positive effect on its refinery
efficiency and utilization in 2016, and would certainly increase the refining margin and
EBITDA as well.
Figure 12: BCP’s adjusted EBITDA
Source: Company data, AWS estimates
Recommend BUY with 2015 fair value of Bt38.10
We derived our target price for BCP using EV/adjusted EBITDA multiple at 7.5x, which
is the arithmetic mean of the last three years. We believe BCP deserves to trade at a
premium to its refiner peers thanks to the diversification strategy. Our 2015 target
price of Bt38.10 offers an upside of 14.6% from the current price and a dividend yield
of 4.2%. Meanwhile, there is potential upside from E&P benefits which we have not
factored in our valuation. We recommend BUY.
3,934
8,278
6,574
9,179 9,913
11,631
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2011 2012 2013 2014F 2015F 2016F
Btm Adjusted EBITDA
8
31 Oct 2014
Initiate Coverage: BCP
Figure 13: BCP’s EV/adjusted EBITDA
Source: Compiled by AWS
Table 1: Financial projections
Source: AWS estimates
4.0
5.0
6.0
7.0
8.0
9.0
10.0
01/2
012
03/2
012
05/2
012
07/2
012
09/2
012
11/2
012
01/2
013
03/2
013
05/2
013
07/2
013
09/2
013
11/2
013
01/2
014
03/2
014
05/2
014
07/2
014
09/2
014
x
EV/EBITDA - 2 SD - 1 SD avg. + 1 SD + 2 SD
Income Statement
Unit: Btmn 2012A 2013A 2014E 2015E 2016E
Revenue from sales & services 165,246 186,514 191,258 202,688 212,531
Cost of sale of goods & services 158,083 177,472 182,011 191,465 199,769
Gross profit 7,163 9,041 9,247 11,222 12,762
Selling & administrative expenses 4,100 4,290 4,549 4,829 5,058
Finance costs 940 1,064 1,526 1,379 1,335
Income tax expense 715 932 697 549 685
Net profit 4,273 4,653 4,179 4,844 6,064
EPS (Bt) 3.10 3.38 3.04 3.52 4.40
Balance Sheet
Unit: Btmn 2012A 2013A 2014E 2015E 2016E
Assets
Cash and cash equivalents 8,006 6,527 13,183 10,934 11,397
Trade accounts receivable 7,737 8,660 9,563 10,134 10,627
Inventories 19,175 17,092 18,201 19,147 19,977
Property, plant and equipment 29,919 31,771 36,507 40,222 42,446
Intangible assets 1,196 1,392 1,261 1,131 1,000
Total assets 70,853 72,389 84,122 87,008 90,919
Liabilities
Trade accounts payable 13,700 11,534 12,240 12,876 13,434
LT loans from financial institutions 16,028 17,834 16,791 15,749 14,874
Debentures 2,995 2,996 13,000 13,000 13,000
Total liabilities 38,530 37,408 46,721 46,334 46,018
Shareholders' equity
Issued and paid-up share capital 1,377 1,377 1,377 1,377 1,377
Share premium 11,157 11,157 11,157 11,157 11,157
Retained earnings 19,400 21,988 24,308 27,481 31,608
Total equity 32,323 34,981 37,401 40,674 44,901
Total liabilities and equity 70,853 72,389 84,122 87,008 90,919
9
31 Oct 2014
Initiate Coverage: BCP
ADVANC BTS GRAMMY MCOT PTT SC SSI TMBAOT CIMBT HANA MINT PTTEP SCB SSSC TNITYASIMAR CK HEMRAJ NKI PTTGC SCC SVI TOPBAFS CPF ICC NOBLE QH SCSMG SYMC TRCBANPU CPN INTUCH PAP RATCH SE-ED TCAP TRUEBAY CSL IRPC PG ROBINS SIM THAI TTWBBL DRT IVL PHOL RS SIS THCOM TVOBCP DTAC KBANK PR S&J SITHAI THRE UVBECL EASTW KKP PRANDA SAMART SNC TIP VGIBKI EGCO KTB PS SAMTEL SPALI TISCO WACOALBROOK ERW LPN PSL SAT SPI TKT
2S ASP CHOW GBX JUBILE LRH NMG PPP SINGER TCP TOG UACACAP AYUD CM GC KBS LST NSI PREB SIRI TF TPC UMIAF BEC CNT GFPT KCE MACO NWR PRG SKR TFD TPCORP UMSAHC BFIT CPALL GL KGI MAJOR OCC PT SMT TFI TPIPL UPAIT BH CSC GLOW KKC MAKRO OFM PYLON SNP THANA TRT UPOICAKP BIGC DCC GOLD KSL MBK OGC QTC SPCG THANI TRU UTAMANAH BJC DELTA GSTEL KWC MBKET OISHI RASA SPPT THIP TSC VIBHAAMARIN BLA DTC GUNKUL L&E MFC PB SABINA SSF TICON TSTE VIHAMATA BMCL ECL HMPRO LANNA MFEC PDI SAMCO STANLY TIPCO TSTH VNGAP BWG EE HTC LH MODERN PE SCCC STEC TK TTA VNTAPCO CCET EIC IFEC LHBANK MTI PF SCG SUC TLUXE TTCL YUASAAPCS CENTEL ESSO INET LHK NBC PJW SEAFCO SUSCO TMILL TUF ZMICOASIA CFRESH FE ITD LIVE NCH PM SFP SYNTEC TMT TWFPASK CGS FORTH JAS LOXLEY NINE PPM SIAM TASCO TNL TYM
A ASIA CITY EASON HTECH KASET MJD PL SF SVOA TMI UOBKHAAV BAT-3K CMR EMC HYDRO KC MK POST SGP SWC TNDT UPFAEC BCH CNS EPCO IFS KCAR MOONG PRECHA SIMAT SYNEX TNPC UWCAEONTS BEAUTY CPL F&D IHL KDH MPIC PRIN SLC TBSP TOPP VAROAFC BGT CRANE FNS ILING KTC MSC Q-CON SMIT TCCC TPAC VTEAGE BLAND CSP FOCUS INOX KWH NC QLT SMK TEAM TPP WAVEAH BOL CSR FPI IRC LALIN NIPPON RCI SOLAR TGCI TR WGAI BROCK CTW FSS IRCP LEE NNCL RCL SPC TIC TTI WINAJ BSBM DEMCO GENCO IT MATCH NTV ROJNA SPG TIES TVD WORKAKR CHARAN DNA GFM JMART MATI OSK RPC SRICHA TIW TVIALUCON CHUO DRACO GJS JMT MBAX PAE SCBLIF SSC TKS TWZANAN CI EA GLOBAL JTS MDX PATO SCP STA TMC UBISARIP CIG EARTH HFT JUTHA PRINC PICO SENA SUPER TMD UEC
Corporate Governance Report disclaimer
The disclosure of the survey result of the Thai Institute of Directors
Association (“IOD”) regarding corporate governance is made pursuant
to the policy of the Office of the Securities and Exchange Commission.
The survey of the IOD is based on the information of a company listed
on the Stock Exchange of Thailand and the Market for Alternative
Investment disclosed to the public and able to be accessed by a
general public investor. The result, therefore, is from the perspective of
a third party. It is not an evaluation of operation and is not based on
inside information.
The survey result is as of the date appearing in the Corporate
Governance Report of Thai Listed Companies. As a result, the survey
result may be changed after that date, Asia wealth Securities Company
Limited does not conform nor certify the accuracy of such survey result.
Score Range Number of Logo Description
90 - 100 Excellent
80 - 89 Very Good
70 - 79 Good
60 - 69 Satisfactory
50 - 59 Pass
Below 50 No logo given N/A
รายงานการประเมนิการก ากบัดแูลกจิการ (CGR) โดยสมาคมสง่เสรมิสถาบนักรรมการบรษิทัไทย 2556 Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013.
10
31 Oct 2014
Initiate Coverage: BCP
Branch Address Phone Fax
Head Office 540 Floor 7,14,17 , Mercury Tower, Ploenchit Road,
Lumphini, Pathumwan Bangkok 10330
02-680-5000 02-680-5111
Silom 191 Silom Complex Building,21st Floor Room 2,3-1 Silom
Rd., Silom, Bangrak, Bangkok, 10500 Thailand
02-630-3500 02-630-3530-1
Asok 159 Sermmitr Tower, 17th FL. Room No.1703, Sukhumvit
21 Road, Klong Toey Nua, Wattana, Bangkok 10110
02-261-1314-
21
02-261-1328
Pinklao
7/3 Central Plaza Pinklao Office Building Tower B, 16th
Flr., Room No.1605-1606 Baromrajachonnanee Road,
Arunamarin, Bangkoknoi, Bangkok 10700
02-884-7333 02-884-7357,
02-884-7367
Chaengwattana
99/99 Moo 2 Central Plaza Chaengwattana Office Tower,
22nd Flr., Room 2204 Chaengwattana Road, Bang Talad,
Pakkred, Nonthaburi 11120
02-119-2300 02-8353006
Chaengwattana 2
9/99 Moo 2 Central Plaza Chaengwattana Office Tower,
22nd Flr.,
Room 2203 Chaengwattana Road, Bang Talad, Pakkred,
Nonthaburi 11120
02-119-2388 02-119-2399
Mega Bangna 39 Moo6 Megabangna, 1st Flr., Room 1632/7 Bangna-
Trad Road, Bangkaew Bangplee, Samutprakarn 10540
02-106-7345 02-105-2070
Rayong 356/18 Sukhumvit Road, Nuen-Phra Sub District, Muang
District, Rayong Province 21000
038-808200 038-807200
Khonkaen 26/9 Srijanmai Road, Tamboonnaimuang, Khon Khaen
40000
043-334-700 043-334-799
Chonburi 44 Vachiraprakarn Road, Bangplasoi, Muang Chonburi,
Chonburi 20000
038-274-533 038-275-168
Chaseongsao
233-233/2 Moo2 1st Flr., Sukprayoon Road, Na Meung
Sub-District, Meung District, Chachoengsao 24000
038-981-587 038-981-591
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