National Petrochemical (NPC)
informed the SET that the company will shut down its
ethylene production unit for six days beginning on March 20
to fix some parts of its charge gas compressor in order to
improve efficiency. The company expects to resume commercial
production again by March 26.
The shutdown will lower NPC's
ethylene production by around 7,000 tonnes or revenues by
approximately Bt150mn. However, considering that the plant
capacity is 437,000 tonnes per year, it represents only 1%
of NPC's total annual revenues. Therefore, it shouldn't
significantly affect company earnings.
The company still plans to
shut down its propylene (oleflex) plant for maintenance for
about 30 days in July, which will result in propylene
capacity dropping by around 5,000 tonnes equivalent to sales
of Bt130mn. Like the ethylene plant shut down, the impact
will be just marginal, only 0.8% of the company’s total
full-year revenues.
We are maintaining our
positive outlook on NPC this year as ethylene and propylene
prices have risen to $690 and $690 per tonne, up 66% and 33%
from average prices in 4Q02. The company does not fully
benefit from the price rise, as part of its sales are on
long-term contracts with the Siam Cement Group. Based on
conservative average ethylene and propylene prices of $470
and $500, respectively, we are projecting that NPC achieves
earnings growth this year of 37% to Bt1,886mn (EPS Bt6.1).
We expect to see another 38%
jump in 2004 earnings after NPC's new HDPE plant with
250,000tonne/year capacity starts up in 3Q04. Even with
capex on this project, NPC should be virtually debt free
next year.
We also like NPC's current
valuation with the stock trading at 2003 PER of 8.1x,
EV/EBITDA of 3.4x, dividend yield of 9% and a 31% discount
to our fair value estimate of Bt72. We maintain our BUY
recommendation.
