Earnings Call: Q1 2021

May 24, 2021

and we will have Q and A. You can use raise hand function for Microsoft Team and use the checkbox to type in your questions. Now I would like to invite PTT's CEO, Koon Atopon and our CFO, Koon Panarin, please. Good afternoon. Dear analysts, investors, we meet again. We are going to present the performance for the first quarter 2021. We are meeting online still. Towards the end, during Q and A, the management at the chief level will join us as well. It's our intention to project the message that whatever the circumstances, we continue to perform our duty as usual. Let's go to the presentation starting with key activities in the Q1 of 2021, starting with PTT itself, gas business. From the 1st January 2021, the NGV retail price for public sector has been adjusted to equal that of the private sector, that is good outcome for us resulting in less loss by 7 57,000,000 baht. We expect that the whole year loss will be reduced by 2,000,000,000 baht. Secondly, in January, we experimented the commercial LNG shipment. The intention is for us to be the LNG hub. So we do the break bulk, importing LNG and then breaking the bulk and then exporting to China or truck loading and export to neighboring country, I. E, Cambodia. And we also do the LNG reloading that's big size, So we reload and so to Japan capitalizing on the time when spot price is so high and our contracted price is low. So on the basis of that, we reloaded the contracted cargo and then sold at spots at higher price, resulting in our preparedness in doing LNG and positioning Thailand as LNG hub. Another development is the establishment of Innopolymet Company Limited, a joint venture between IRPC, PTT through InnoBig Asia in order to well, to produce non woven fabric. The non woven fabric is the material used in mask, the middle layer of the mask which has never been produced in Thailand before. We used to have to import the raw material with the joint venture. We can produce non woven fabric. That is part of the life science venture. It's deemed part of the consumables segment. IRPC has this technology. IRPC holds 60%, INOBE holds 40%. And also we established PTT MEA in UAE. If you recall, we reported earlier about the joint venture to set up a futures or trading market in Abu Dhabi. So this is the vehicle in charge. We will explore other opportunities going forward. PTT is one of the founding members for this futures market that was inaugurated 2 months ago. Next development, we established on solutions. It's we hold 100% in this JV. Originally, it was meant for EV charging business, but we have adjusted to enable this company to look at the whole chain of electric vehicle. PTT is paying more attention to EV business. So within the next couple of months, we are going to launch a new business. So please monitor the development. It is going to be done through on ion solution. So its scope is broader than EV charging station. Now, next PTT EP has acquired 20% stake in Block 61 in Oman. So this is acquired from BP. This is a major block and it will reduce the average cost for PTTP. And gas and oil discovery in SK417 7 and SK 438 in Malaysia and oil in SK 405B. So that's offshore Sarawak of Malaysia. And in February, there is 1st gas production of Block H project in Malaysia. So that's the achievement of PTT EP's investment in Malaysia. Its investment in Malaysia is bearing fruit. Next, GC. GC has acquired 16.24% of Vinitai through so it will bring the total to 41.22%. And in the end, we will delist Vinitai from the stock market as well. The objective of the acquisition is to broaden the investment in downstream as well as strengthen GC's competitiveness. Next OR, you know well that the first trading day on 11th February, it is very successful both in terms of objective to distribute shares to retail investors while stabilizing the price. The price is stabilizing at 30 baht also. Jpsc has invested in Anhui Exiva New Energy Technology in China. It's a battery manufacturer with 1 gigawatt per annum capacity using the 24N technology, which PTT is holding share. And the factory itself is contracted to supply batteries to a Cherry model, which is China's own EV that is selling quite well. So it is a good opportunity for us to make headways into China's market and it will serve as a foundation for us to partner with the Chinese companies in the future. And we by way of updating, I would like to report on several other key developments starting with Inovig Asia acquiring shares of Lotus Pharmaceutical Company Limited in Taiwan, 6.66% stake. Lotus core business is R and D, manufacturing and distributing generic drug covering different diseases from cancer to neuro and the investment in Lotus will enable PTT to expand into on core drug market in ASEAN and we will send our people to learn the know hows in the company and we will have the network to broaden our footprint in this business. And I understand that we are going to import remdesivir, the anti COVID drugs, which Thailand is lacking. So we rely on the partners network to import that. So that's import and then we donate to the government as part of our contribution. Next, we established T Ecosystem with the registered capital of 3.50,000,000 baht with the objective to do the industrial digital platform under the cooperation with Ministry of Energy, Industry Estate Authority, Financial Institutions. So that it's the platform for industrial companies wishing to digitalize their business not knowing where to start. It can use this platform And thirdly, we approved Innovate Asia to work with Nordfood which is part of NRF with registered capital of 300,000,000 baht. Innovate and Nordfood fifty-fifty to do plant based protein business which is the emerging trend. And this company will set up a factory with 3,000 ton capacity per year. That is the big scale of its kind in Thailand for plant based protein. We see progress in the direction of life science for PDT. I understand that you heard the presentation from Doctor. Brennan. And next, we purchased shares of GPSC from GC about 12.73 percent PTT on a whole will hold shares totaling 44.45 percent in GPSC. And that will bring us on par with other flagships of PTT. So that's in the power sector, which has prospects for high growth both in conventional and renewable power business. Next, PDT approved Enco, which is a subsidiary and that's a joint venture between PDT and PDT EP to bid and buy the crew center of Thai Airways International in order to accommodate the expansion of PDT's business. I've been told that there's already demand for 50% of the space. So those are key activities happening in the Q1 of the year. Next, let's take a look at key business drivers. 1st of all, oil price itself, Dubai, Q on Q. Dubai averaging up 35% over Q4 2020. So from $44 to $60 per barrel. As you know well, due to the fact that OPEC plus strict compliance and the early part of the year you will hear that Saudi volunteer another 1,000,000 barrel cuts and demand is improving due to vaccine rollout in different countries. And there's also the demand constraints from polar vortex in the U. S. Resulting in disruption in many production facilities. So year on year increase as well, 18% from $50 to $60 per barrel. Looking at fuel oil price, Q on Q up 28 percent from $14.1 to $56 per barrel on the back of rising demand in the shipping sector and also LPG, which is the renewable, has increased dramatically during the period year on year, up 30% from $43 to $55 per barrel national natural gas Q on Q up 3% from $5.6 per 1,000,000 BTU to $5.86 mainly because LNG import up by 14%, whereas gas in the Gulf, gas price is quite stable year on year. The price is down by 19 percent from 7.26 to 5 because of the decrease in LNG imports from Myanmar down by about 20% and gas of Thailand supply down by 15%. Petrochem, all of things up both Q on Q and year on year HDPE and PP price up also on the back of improving economy plus demand from China as they stock up ahead of Chinese New Year and constraint of supply due to container shortage and polar vortex in the U. S. Aromatic price improved as well both Q1Q and year on year. PX up on the back of higher crude oil and Naphtha due to higher demands on the back of recovering economy and downstream such as textile, pet racing, plastic bottles improving and demand from PTA, new PTA factories in China with 4,900,000 tonne capacity per year. In addition, tight supply due to shutdowns, maintenance in China and the polar vortex in U. S. Resulting in temporary shutdowns. Benzene price is up also due to higher crude and naphtha. As demand became higher and manufacturers of food packaging. Let's take a look at FX Q on Q at end of Q1 or end rate, but is 1 point 3 week resulting in FX loss quite significantly. PTT Group as a whole about 10,000,000,000 yen and PTT alone 1 700,000,000 yen whereas Q4 2020 baht was strong and average monthly average of baht in Q1 Q1 is stronger by 0.4 compared with Q4 year on year end rate for baht 1.3 percent lower than Q1 2020 and resulting in FX loss. FX loss is less when compared with Q1 2020 monthly average. It is stronger by 1.1 baht. So those are the key drivers impacting Q1 performance of PTT. Next performance itself, I would like to invite Kun Panarin, please. So based on what the CEO has already said about the key drivers in Q1, you can see that everything, whether it's the oil price, petrochemical prices, they are better. As a result, in terms of performance, you can guess that performance of PTT Group is better, whether it's on a year on year or Q on Q basis. So if we go to Slide Page 6 is the overview picture. So based on that key drivers, whether it's revenue, EBITDA or net income, so everything is higher. In terms of revenue, I'm going to talk about Q on Q figures only. So revenue from our business increased by 17%, thanks to the price of the products as well as searching the demands. EBITDA also increased Q1, Q44 percent from several businesses from gas, oil business and P and R. And we also get the stock gain and the spread of the petrochemical products are also better, whether it's coming from the demands as already stated as well as higher price of products. In terms of E P, average price are also higher, whereas the operating expenses are lower. At the same time, sales volumes also increased by 1% mainly from Block 61 in Oman and Bongkot project. In terms of the gas separation projects, sales volumes and sales price also increased. Trading and oils are also higher. So eventually, the net income also increased more than 100% Q on Q and as already explained. And besides the impairment in Q1, there was no impairment in Q1. And there's a profit from the PTT EP from the acquisition of its own businesses and net with the impairment of the assets as a result of the valuation of assets in the Brazil project. So eventually, the result is positive. However, factors that could affect the performance is the loss on negative loss on derivatives. So this is the negative factor. And there are also tax expenses, which is higher as a result of the operating higher operating profits and as well as the loss from the FX as the CEO has already explained. So now we are coming to each business. So in terms of E and P, as you have already heard, the sales price increased by 10%. The sales volumes increased by 1%. So the net profit of PTG EP on a Q on Q basis is more than 100%. So aside from the normal operating profits, they also have lower operating expense. They also gain profits. However, they have the higher expense in terms of exploration and also higher tax as a result of the higher profits. In terms of PTT, you can see that right now there are main businesses which are natural gas and trading. So EBITDA in terms of Q on Q is higher by 39%, both in natural gas business and trading business. So starting from the natural gas business, the EBITDA is increasing by 30 4% from every unit of business except the NGV. So started by S and M, you can see EBITDA increased by 71%. So this is a result of the self by 8%. And mainly is a result of the clients in the electricity business. The sales volumes increased by 12%. The gas separation projects increased by 4% because in this quarter, there was no shutdown. Industry appliance also increased by 2% as a result of the refinery projects. And you can see the NGB, the reduction is about 6% because cars using NGBs are down because they turn to other types of energy. Average price for industrial clients also increased. The cost of natural gas also increased a bit by 3%, mainly from LNG. Gas in the Gao of Thailand and in Burma is remained stable. In terms of pipeline business, the EBITDA is stable. And regarding the GSP EBITDA increased by more than 100%. As I have already said, the average sales price increased as a result of the increases of reference petrochemical price. And the main increase is a result of the propane and e tin. And cost of fee cost of GSP also remains stable. In terms of NGV, the loss increased by 39%. This is because of the decline of the incomes. Regarding others, you can see that the profit is also higher. However, in this quarter, the performance is coming from PETT and GD. And this is because of the higher sales price as a result of the higher fuel oil. And sales volumes also increased. Trading business, the EBITDA of trading business is also increased by more than 100%. And sales volumes increased by 1% because LNG and LPG out out have been sold. And actually, there are also sales of petrochemical products. And that's why EBITDA of trading is increased by more than 100%. And now I am going to the oil business. So we try to present the information so that it aligns with the OR business that has already been listed in the STT. So we divided the OR Group into oil business and non oil business. Oil business performance is better because of the higher gross margin per lit, which is 27%. And there is also a higher stock gain. However, sales volumes of the oil business is down by 6% because of the new surge of COVID-nineteen. In terms of non oil business, you can see that Q on Q performance is declining and mainly because of the sales volumes in terms of the number of cups of Amazon, it's down by 1%. And this is largely because of the COVID-nineteen. And some Amazon outlets in certain area temporarily closed, and we also reduced the rent for certain operators. And that's why its Q1's performance is a little bit declining. However, you can see that the net income is increased by 37% Q on Q and mainly from the stock gain. And if you can see here that the stock gain Q on Q is higher by 70 by 42% or about BRL 1,000,000,000. In terms of P and I business, Q1Q performance is also better, whether it's about olefin refinery or alumatry businesses. Olefin is getting better because of the constantly increase of the products of the price of the products. Sales volumes also down a little bit. And you can see that from 110% to 105% because of the HDPE 1.1 percent of HDPE. Aromatics performance is also better, whether it's mentioned spread or other spread, whereas the utility rate remains the same. And this is because of the demands of the downstream products, which is increasing. In terms of refineries, the utility rate is slightly increased by 1%. And if you can if you see GRM, the market GRM is better from 1.2% to 1.92%. However, what really affects is the stock gain. And you can see that it increased quite a lot from 1.9 to 5.1, whereas the hedging loss is also declining. And as a result, the accounting in GRM is increasing increase. So all of this result in the increase of the net income of the P and R business by 22% Q on Q or about RMB 18,000,000,000. But you can you may ask that well, the net income is only 22% increase, right, which is not much. However, you can see that the record of the asset in Q1 compared to Q4 is down. And in terms of the GPSC sales volumes are down by 1% and mainly because of the STP power plant, of which the sales volumes is slightly declining. And as a result, the gross margin increased by 8%. Sales volumes increased just a little bit, but they get it from margins increasing margins from the industrial industrial clients. And as a result, the gross profit margin increased by 8%. The net profit increased by 35%, mainly from the increase of the gross profit margin together with other increase or increase of other incomes. For example, the sales of GRP, 50% shares of GRP to PTT and also the increase of the tax loss carry forward. Because last year, they used the loss carry forward. And in addition, they also enjoyed lower profits from the Sayabuli hydro power plant in LAPBR, and that's why the record is lower. In the next page, you can see that in terms of operating net income, excluding extra items and stock gain, and you can see that the performance is better by 25% from JPY15 1,000,000,000 to JPY19 1,000,000,000. However, in terms of bottom line, the net income increased by more than 100%. In terms of categorical products, you can see that the margin is nearly TWD20 1,000,000,000. So every group of business is enjoying a great margin except OR business. In terms of stock gain and loss, we got the gain for about KRW7 1,000,000,000. In terms of OpEx is a positive impact. So it's down by KRW3.9 billion, and this is mainly from the cost, the decline of the maintenance cost. And in terms of depreciation and amortization, it slightly increased by KRW 200 1,000,000. But other incomes also increased by KRW5.8 billion and mainly it comes from profit from the acquisition of the Oman project, which is lower than the book value and we net it with the write off of the project in Brazil. In terms of impairment, it's down by KRW9 1,000,000,000. And if you remember, in Q4, we did the impairment of JPY 4,700,000,000 in Q4 and from JPY 3,000,000,000 from PTTP and about JPY 456,000,000 yen in IRPC. And that's why that was that happened in Q4. However, this does not existed in Q1. In terms of the derivative loss is higher by the JPY 50,000,000,000 and this is divided into JPY 13,000,000,000 loss of FX, whereas the derivative loss also increased by JPY 2 point 8,000,000,000 yen and this is the negative factor. And the last column is the interest and COVID income tax expenses plus NCEI is also a negative factor by about yen 10,000,000,000 yen You can see that NCI has also increased by yen 8,000,000,000 yen Tax expenses also increased by yen 3,000,000,000 because of a better performance. At the same time, interest income also increased by KRW1 1,000,000,000 as a result of higher loan. And as a result, the net income result in about 32,000,000,000 yen. In terms of balance sheet, you will see that the assets increased by 8 percent or about 200,000,000,000 yen the assets had increased mainly you will see that PPP is up because EP's acquisition of Oman and construction work of CFP of Thai Oil, recurring assets up by 60,000,000,000 yen due to receivables and inventories that increased on the back of higher oil price and non recurrent assets increased by about 35,000,000, mainly because of the outstanding tax and the acquisition of Oman in terms of cash and short term investment higher because of investment in short term due to higher interest for deposits liabilities increase chiefly because of interest bearing debt up by about 55,000,000,000 yen because PTT borrowed long term and the issue of debentures mainly from JC. Other debts and liability increase also due to receivables on the back of higher oil price for equities increase because the net income of 32,000,000,000 yen and factors beyond control about 40,000,000,000 yen due to the capital increase of our financial ratio, you will see that net debt to EBITDA has improved from 1.68 to 1.39 even though net debt increased, but EBITDA increased at higher rate resulting in financial ratio improving. For net debt to equity is equal to year end 2020 at 0.29 within the policy benchmark of PTT Group. This slide on cash flows, at the start of the year, we have about 3 33 cash in hand towards the end of quarter, 320 slight decrease due to cash flow from operation higher by 50, but we have investment activities to the June of RMB145 1,000,000,000 due to EP's investment in Oman project and payment of CapEx from various projects be it Thai Oil, GC and PTT itself investing in the 5th pipeline and PTT LNG investment. All these result in free cash flow in red by 94 baht. Looking at financing activity, cash in of JPY 84,000,000,000 because of OR shares and higher borrowing to the tune of RMB37 1,000,000,000. So cash in of about RMB84 1,000,000,000. All total to all activities, the cash out for the period is at JPY 12,000,000,000, resulting in cash at end of quarter at 32 plus short term investment of PTT Group at JPY 118,000,000,000, resulting in towards end of quarter cash and investment combined are 438,000,000,000, which makes us ready for investment. Next, I would like to present outlook starting with economic outlook, global economic outlook from IMF. So world economy forecast 6%, U. S. 6.4 euro area 4% China 8% Japan 3% India 12.5% subject to but that figure came out before the latest outbreak. It has to be shaved off by 1% to 3% for Indy. Different drivers we know well about the new round of economic stimulus especially President Biden in the U. S. 1.9 trillion package approved in March that will be a major booster and vaccine rollout. Many countries around the world are doing it. Now 600,000,000 people are vaccinated and adaptation to new normals. Of course, the negative factors to watch for, the outbreaks would not end soon. It can come back as soon as the guts are down. We have to watch for the variance and mutations and recovery of different countries vary according to economic fundamentals of those countries as well as the government's management of the outbreak. For example, for Thailand, we well, our figures, our numbers are lower than world average. We our economy is projected to grow at just 2% because the Thai economy is very dependent on tourism tourist arrivals with the next with the new wave of outbreaks in Thailand, it really hits the economy hard. Last year, we contracted by 6. So this year, the projection from a range from 1 to 3, but the latest projection is in the range of 2. We don't see 3 anymore. Taking into account the latest wave of COVID outbreak, we hope that the global economic recovery will boost our exports even though tourism is not back yet for the time being in terms of vaccine rollout. Thailand may start late, but hopefully after June, as far as the government data tell us, they are procuring vaccination vaccine dosages on mass if well managed. The rollout will improve in the latter half of the year and relief measures. The government continues factors to watch out for. The 3rd wave is not over yet. If it is contained, nobody can tell whether and when the 4th wave will arrive as long as there is no herd immunity, the risks stay and it will impact the opening up of the country for tourism and the scarring, the consequences from COVID-two date, how these can be healed in terms of firms going under next petroleum and gas outlook. Let's start with petroleum product. We anticipate that prices will increase basically across the board, across items. Dubai crude should be in the range of $60 to $65 per barrel. Last year, the average is at $42 per barrel. Demand is likely to increase on the back of recovery. It is forecast that demands for crude would be 96 to 97,000,000 barrels, up by 5,000,000 to 6,000,000 barrels per day over last year. And OPEC plus, as we speak, it is still they are still working together well in cutting output. So hopefully they will continue. They will stay on track and geopolitical risks still prevail in Libya, U. S. Sanctions on Iran. These are positive factors for pricing and the negative factor would be the resurgence of COVID in high demand countries, India, Brazil, Japan and several other countries. Countries, India, Brazil, Japan and several other countries. In terms of products, gasoline, it's expected to average at $67 spread at $9 per barrel compared with $4 spread last year. Positive factors, light distillate inventory of Singapore is back to normal. And surely come June July, it would be the peak season. Gas oil average price should be in the tune of $65 to $75 whereas spread would be about $7 per barrel compared with $6 per barrel last year. Demand is anticipated to increase as industrial growth pick up. Supply remains high, so that's negative. And distillate inventory of Singapore is relatively high compared with more gas. So that will be the pressure factor for pricing. High sulfur, fewer oil average price should hover at 54 to 64 spread minus $4 per barrel. Demand is expected to be higher due to power sector demand and supply as I said, it will be strained due to reduced capacity from OPEC plus producers. Low sulfur, very low sulfur fuel oil, less than 0.5 sulfur, It should stay at 66 to 76 spread at $8 a barrel. Bunker demand is likely improve, Singapore GRM, this year, it should be in the range of 2 to 2.5, much better than last year at 0.4. Gas, Asian spot LNG should average between 8.2 to 9.2 per 1,000,000 BTU. Gas price in Europe increases due to severe winter that will push up Asian spot price as well. But the range will be narrow because buyers in Asia in part have already procured LNG in advance. Henry Hub averaged at 2.5 to 3.1 per barrel due to steadily increasing demand. So that's the forecast for petroleum product. Next, petrochemical outlook. In olefins, the short term the short term supply remains tight due to U. S. Plant outages from polar vortex and also a limited export to Asia. In addition, the delayed startup of PRPP, the rapid project of Malaysia to the latter half of the year, the capacity PE 7 100 and 50,000 tonnes per year and 900,000 per year for PP and demand is expected to contract during various long holidays of high demand countries ranging from the Ramadan period, labor holidays and pressure from additional capacities from Northeast Asia and Southeast Asia, especially China in the second quarter. The HDPE price is projected to increase by about 30% to 11 20 to 11.70 per ton NPP yarn to 12.70. For Aromatics, PX Benzene will equalize due to higher demand and economic recovery. And now the inventories in China are low. So that's positive factor whereas negative factors, pressures will come from PTA and N Products where demand remained weak with new supplies in the pipeline of PX and Benzene from China's PX about 4,000,000 tonne, benzene about 1,500,000 plus Saudi Aramco PX 850,000 and benzene about 200,000 in the latter half. Pricing wise, benzene should be up by 60% from 4.85 to 7.85 to 8.35 per tonne this year. PX, 39% increase from 5.77 to 7 75 up to 825. NEPSA, positive factor is supported by new petrochemicals to be COD and negative factors supply remains high from refineries that will pick up their capacity. NEFTA is expected to increase from last year from $3.80 per tonne to $5.50 to $600 in 2021. Next is PTT Group guidance activities to come. The core business for PTT gas business, the natural gas demand will increase from 4,390,000,000 per day, mainly from power sector. And sales in petrochemical sector will increase resulting in utilization rate in the range of 92% to 94% compared with 87.8% of last year. The flat pooled gas cost is another factor. The through our subsidiaries for E and P business, crude oil price is expected to cover. As already mentioned, volume is anticipated to rise by 14% from 3 well from 340,000 barrels per day to 400,000 and more competitive costs as we managed to drive costs down by another 5% from $30.5 to $28 per barrel in unit cost, mainly due to the acquisition of Block 61 Oman with low cost and can produce immediately. Oil OR is expected to improve in the latter half of this year in 2021. We intend to add 192 stations into the portfolio of which 110 inside Thailand, 82 outside for non oil. We aim to expand Amazon Cafe adding 500, 500, 400 or so in Thailand and 132 outside Thailand. P and R, the refineries are expected to recover from last year. Singapore GRM to improve and utilization rate is expected to be 97% to 99% compared with 96% last year. Pet chem, the spread should increase across all items as reported and the production volume will increase both olefins and aromatics. For the power business, GPSC, industrial sector demand, especially for steam, for Mahbaput, should increase by 4% this year. For maintenance schedule for PTT Group, but as shown in the slide, so that's routine maintenance and shutdown. For upcoming projects, mostly proceed according to plans in Q2, 5 projects are expected for PTT itself. The gas pipeline Rajapuri Wangnoi stretch GPSC, the Rayong West to Energy Plant in Rayong consisting of West Separation Plant and conversion to energy and power generation capacity of 9.8 megawatts. So that's expected to COD Q2. TPSC has energy storage business, 30 megawatt using semi solid technology of 24 and GC Mahdaput retrofit is expected to wrap up to improve all of things production 750 kton per year. And do you see increases capacity for PTA and Pet PTA from 9.70 to 1400 kton per annum pet from 147 kton to 200 kton. This is supposed to finish in Q2, latter half of twenty twenty one. Two projects are anticipated the 5th pipeline of PTT and plastic high grade plastic recycling project of GC, capacity combined capacity of 45 ks ton per annum. So that's the picture ahead for 2021. So