PTT: The operating license

PTT: The operating license for GSP#6 to be granted soon! - Buy (Target Bt340.00)

? According to a local newspaper, Kaohoon, PTT’s top management Mr. Permsak Cheevawattananon claimed that PTT’s GSP#6 is likely to obtain an operating license within this Sep 2010.

? PTT expects it to take 30 days for commissioning and test running this new GSP with a 50% utilization rate. Afterward, the plant is likely to run at full capacity within the next two months to serve the current strong domestic demand for natural gas and LPG consumption.

? Management does not expect any negative effects to the start-up and/or operation of this new GSP from the protests in Map Ta Phut at the end of this month.

? This news could act as a positive share price catalyst to PTT in the short term as we previously expected the granting of the operating license to GSP#6 and other projects in Map Ta Phut to be delayed for a few weeks or months due to political intervention.

? As we assume GSP#6 to start contributing earnings in 2011, the quicker-than-expected operation start-up of the plant offers upside to our earnings forecast in 2010 of Bt72.2bn. Additionally, as the current demand for natural gas consumption has reached 4,000mmcfd—representing about 6% growth—this stronger-than-expected demand (~4% growth was the previous projection) could imply a higher profit contribution from the gas business in 2011. Therefore, our 2011 earnings forecast of Bt79.8bn is also subject to upside risk.

? Given all this, we reiterate our BUY rating to PTT with a mid-2011 target price of Bt340 due to potential upside to our earnings forecast and its cheap valuation—it trades at 10.9x of an average 2010-11 PER compared to 10.5x of its regional peers. The premium is deserved due to its stronger earnings growth and ROE.