Bangchak Corporation Public Company Limited (BCP) Earnings Call Transcript & Summary

On behalf of Bangchak Corporation Public Company Limited, I would like to welcome you all to the first quarter 2021 analyst meeting, featuring the announcement of the operating performance the first quarter of 2021, followed by the Q&A session at the end. Without further ado, I would like to introduce the executives who will be giving reports on the operating performance and business updates today. One, Khun Somchai Tejavanija, Chief Marketing Officer and Senior Executive Vice President, Marketing Business Group; two, Khun Surachai Kositsareewong, Senior Executive Vice President, Accounting and Finance; three, Khun Bundit Hansapaiboon, Executive Vice President, Planning & Trading business; four, Khun Supamol Aiem-On, Investor Relations Manager. Bangchak's operating performance in the first quarter of 2021 has been in line with our projection. Our key indicators, EBITDA and net profit, have improved both quarter-on-quarter and year-on-year. Today, we also have Khun Somchai and Khun Bundit joining in the session to provide detailed information to analysts later on. At this point, the impact of the third wave of COVID-19 has not been fully taken into account, but we are in the process of evaluating the potential impact on the business. Despite that, our execution plan will not differ much from the original intention, though some minor adjustments will be required. The EBITDA in the first quarter of 2021 has increased compared with peers in the industry though the operating EBITDA in certain businesses may not be as high as we wish them to be mainly due to the overall market condition that has not been very facilitative and the demand-supply mechanism. Details will be discussed further by Khun Somchai and Khun Bundit. There was a significant amount of inventory gain in the first quarter 2021, approximately THB 2,000 million. With a number of adjusted accounting items and onetime transactions, including impairment, the net profit improved to THB 2,284 million in the first quarter of 2021. Our Investor Relations team will provide more details on this later in the financial results section. The operating EBITDA in the first quarter of 2021 was somehow lower than that for the fourth quarter of 2020, mainly due to the 39-day turnaround maintenance in the first quarter of 2021, leading to about 35% decrease in crude run rate. The crude run during COVID-19 is usually about 100,000 barrels per day. But with the turnaround, it decreased to about 65,000 barrels per day. Meanwhile, product spreads have also decreased by about 8% quarter-to-quarter, standing at USD 3.24 per barrel in the first quarter of 2021, declining from about USD 3.7 per barrel in the fourth quarter of 2020. However, there was a hedging loss of about USD 0.4 per barrel in the fourth quarter of 2020. Despite the aforementioned drawbacks, the refinery business has managed to optimize product yield and control spending. The operating EBITDA was maintained in a position that was not much lower than that of fourth quarter of 2020. Without such administration and control, the results could have been much lower. For the Marketing business, the inventory gain in the first quarter of 2021 was reported at THB 295 million, whereas fourth quarter of 2020 recorded inventory gain of THB 152 million. Despite a slight decrease in sales volume, the marketing business performance has improved. The net marketing margin also dropped slightly. But with our active efforts in cost control and efficiency improvement, the operating results were not as heavily impacted compared to the fourth quarter of 2020. Fortunately, the Power Plant business did not get affected by the external factors such as COVID-19. On the contrary, we were able to realize full year returns on our investment in certain assets. All in all, the existing solar energy business is still being executed as planned, contributing positive results to the company with share profits from our investment, which will be explained more in detail. The performance of the Bio-Based Products business has dropped slightly quarter-on-quarter due to lower sales volume in response to lower transportation fuel demand. However, the figures are still considered healthy, and we have to say that the performance in the fourth quarter of 2020 was exceptionally high. For the Natural Resources business, OKEA's execution has been in accordance with the plan. The highlight is pretty much about making adjustments with the expenditures and cost management, leading to lower profit net to Bangchak compared to the fourth quarter 2020, partially because certain expense items have been postponed from the fourth quarter of 2020 to the first quarter of 2021 as well. Nevertheless, with the reversal of certain transactions, OKEA's operating performance is still considered in a good shape. In conclusion, If we actually look at the operating performance with not much regards to the accounting figures, we have managed to maintain the business in a good position. For instance, our Refinery business has been doing well in this past quarter despite the turnaround. In the meantime, we can secure our market share and customer base quite effectively, enabled by our active planning and sales projection, locations of service stations and agile adaptation in our marketing strategies. The Power Plant business is essentially in accordance with the plan, while the bio-based products business is as good as it could be for the time being. And last, but not least, OKEA did not suffer any adverse impact despite a vigorous volatility in oil price recently. The EBITDA of the Refinery and Trading business in the first quarter of 2021 was reported at THB 2,411 million. With the annual turnaround maintenance, the crude run in the first quarter 2021 decreased to about 65,000 barrels per day. As for product yield, fuel oil yield in the first quarter of 2021 was significantly higher than previous quarters due to the turnaround. The crude refining unit was the first to go through the turnaround and was the first to wrap back up and the cracking unit later followed leading to higher fuel oil yield than usual. The turnaround has also led to a decline in the operating gross refinery margin with lower yield of gas oil and gasoline, but higher fuel oil yield. With the gradual recovery of crude oil price, we had an inventory gain in the first quarter of 2021. In the meantime, BCP Trading Pte. Ltd., our trading company in Singapore, has secured a continuously higher growth, especially from low sulfur fuel oil and gasoline. In terms of refinery performance, the gross refinery margin has decreased slightly despite an inventory gain in the first quarter of 2021. The crude oil price has gradually been recovering from second quarter 2020 onwards, in line with positive signs concerning COVID-19. Product crack spreads have also been picking up quarter-by-quarter. The average crude run in the first quarter of 2021 stood at 65,000 barrels per day. Upon completion of the turnaround maintenance and the debottlenecking program, the crude run is currently about 110,000 barrels per day. The projection for the whole year is approximately 100,000 barrels per day, a major slump, mainly caused by the turnaround maintenance in the first quarter with the completion of the debottlenecking for the hydrocracker unit, which is expected to increase their capacity by 10%. It is now in the test run process while the continuous catalyst regeneration unit is also up and running. With these 2 units in operation, our refinery's flexibility will be enhanced and it will be able to process liquid with higher naphtha content as well as heavier oil, given the larger size of the cracker, enabling maximization of the capacity. Also, upon the improvement of the COVID-19 situation, we can potentially increase our refinery capacity. With Project Rocket, we have continuously been executing improvement initiatives all along. It features a series of activities contributed by all relevant staff members to increase output and improve operations for optimal benefits with an estimated benefit of approximately THB 500 million in 2021. COVID-19 may have impacted domestic oil demand. Therefore, we have shifted our focus to produce more of niche products to secure our production capacity as much as possible, resulting in higher yield of unconvertible oil as well as a slight increase in fuel oil, facilitated by our larger cracker, making it possible to process heavier oil. There are a number of niche products to minimize reliance on transportation fuels alone. For instance, the convertible oil, solvent, odorless LPG. Our plan is to increase our niche product portfolio from 5% to 8% to 10% in 2021. Bangchak oils retail market share in the first quarter 2021 was reported at 15.9% compared to 15.7% in the first quarter of 2020, driven by 1.7% growth in the oil retail market year-on-year and 3.3% increase in sales volume compared to the industry average. The net marketing margin in the first quarter of 2021 was THB 0.75 per liter, slightly lower than that of the fourth quarter 2020 of THB 0.77 per liter, mainly due to the sudden rise of crude oil price and the increase in prices of renewable alternatives such as B100 and ethanol. However, Bangchak has been trying to boost sales volume via service stations to prevent the net marketing margin from dropping far too much despite the aforementioned external factors. The retail sales volume in the first quarter of 2021 stood at 351 million liters per month, decreasing by about 4% quarter-on-quarter due to disruptive domestic demand resulting from the second wave of COVID-19 from December 2020 onwards. On the other hand, industrial sales volume in the first quarter of 2021 was 62 million liters per month, which is about the same as that of fourth quarter of 2020 of 61 million liters per month. For our product sales volume breakdown, diesel had a slightly higher sales volume compared to fourth quarter of 2020. Meanwhile, gasohol has clearly been impacted due to the work-from-home protocol encouraged by the government, leading to lower mobility. Jet oil sales volume first quarter 2021 was 37 million liters or about 12 million liters per month as opposed to 30 million liters throughout fourth quarter 2020. The Marketing business had an inventory gain of THB 295 million in the first quarter of 2021. And we have launched 11 new service stations with the total number of service stations of 1,243 sites at the end of March 2021. Also, we have launched 25 new Inthanin outlets in the first quarter of 2021 with the total number of branches at the end of March 2021 standing at 694 branches. The number of convenience stores totaled 190 outlets, comprising Mini Big C, FamilyMart and Tops Daily. Bangchak's current focus is to continuously expand our service station network and Inthanin outlets. With 1,243 service stations at the end of the first quarter, there are 630 standard type service stations owned by the company or dealers and 613 co-op type service stations. There are 100 service stations that are now in the development phase, including 11 stations launched in the first quarter of 2021. Some of them are in the process of preparing for construction, while some are in the design approval phase. Our goal is to push forward the launch of all 100 service stations by the end of this year. Within our 1,243 service stations, some of them are in unique designs with special designs of the roof and non-oil buildings. They feature themes from different cities in Europe, the U.S.A. and also provinces in Thailand. For instance, Sino-Portuguese theme in Phuket and some architectural designs indigenous to Nakhon Ratchasima and Udon Thani. At this point, there are 39 unique design service stations and the plan is to launch 20 more, totaling 59 service stations by the end of the year. These service stations have been well received by customers with higher throughput of about 10% compared to standard service stations. During the battle with COVID-19, we have developed a 7 safe protocol emphasizing on hygiene and safety to ensure customers visiting our service stations and internet outlets of their safety. Our service station attendants and baristas have to measure their temperature prior to commencing work, wear rubber gloves and use trays to receive money. One of the focuses is to minimize the use of cash, and digital payment is now available in more than 300 service stations nationwide, and customers can earn points with Bangchak's loyalty program as well. Furthermore, customers can use partial amount of points to redeem COVID-19 insurance. Normally, every THB 700 spent when customers fill up their tanks will entitle them to a bottle of drinking water. Customers can now donate drinking water to hospitals and field hospitals in high-risk zones. And now we have donated over 50,000 bottles of water, which will be distributed later on. Due to the measures enforced by the government to alleviate the impact of COVID-19, customers are not allowed to have their coffee or drinks in Inthanin outlets. So we have been boosting sales via online channels. As a result, our sales via online delivery platform has now increased by 80%. There were 694 Inthanin outlets in total at the end of the first quarter of 2021, with sales growing by 17% year-on-year. Our cocoa drink has been highly popular among customers with sales increasing by 50% from December 2020, implying Inthanin's positive reception in the market. Bangchak's Lubricant business has expanded above the industry average, marking the first time that the market share has reached the double-digit in January 2021 at 11.7%. Going forward, we aim to continue growing our lubricant market share as it secures high margin, and we are confident in the high quality of our lubricant product. This slide captures our service station model in the future that accommodates new lifestyles. We have been working with their provincial electricity authority as an exclusive partner to install EV chargers in service stations covering all areas in Thailand, except Bangkok, Nonthaburi and Samut Prakan. Currently, they are available in 18 service stations, and we will gradually install them in 56 more service stations in June. There will be 2 charging units in each service station, and each unit has 5 chargers and 4 quick chargers. We can charge a maximum of 3 cars at the same time. With additional installation in 56 service stations in June, there will be EV chargers available in every 100 kilometers, covering the main highway all over the country and in every region. This is considered to be the largest EV charger network that covers the main road nationwide. For service stations in Bangkok, Nonthaburi and Samut Prakan, we are now working with 2 other partners, and we expect to finalize the deal by the third quarter. As for the collaboration with PEA, we will enter in the second phase that goes beyond 56 service stations and increase the coverage of EV chargers along those routes. As a recap from BCPG session, the EBITDA of the Power Plant business increased by 13% quarter-on-quarter and 27% year-on-year. The operating capacity in the first quarter of 2021 stood at 474 megawatts with the electricity sales volume of 157 million-kilowatt hours, which decreased quite significantly quarter-on-quarter, mainly from lower production capacity of hydropower plants in Laos PDR as it was a low season. However, solar and wind power plants in Thailand reported an improved performance quarter-on-quarter from higher capacity factor and wind speed. On the other hand, the electricity sales in Japan has decreased slightly due to a period of curtailment in the first quarter 2021. The share of profit in the first quarter 2021 was realized at THB 140 million, mainly contributed from the geothermal power plant business which had lower operating expenses and financial costs compared to the fourth quarter 2020. However, the financial cost in the first quarter 2021 have also decreased as a result of bond issuance and other refinancing arrangements. The performance of the Bio-based Product business has slumped both quarter-on-quarter and year-on-year, mainly from lower consumption of B100 and ethanol in pursuit of lower oil demand caused by the pandemic from the end of fourth quarter 2020 onwards. The production and sales volume of B100 have dropped quarter-on-quarter from lower demand and higher cost of CPO leading to lower gross margin compared to 2020. In this regard, it is to note that B100 margin in 2020 was quite high. On the other hand, ethanol production capacity in the first quarter of 2021 has increased quite significantly quarter-on-quarter due to the maintenance shutdown of ethanol plant in the fourth quarter of 2020. Nevertheless, ethanol sales volume has decreased due to lower ethanol demand as a blending component with gasohol products, which is in line with the decline in the domestic gasohol gas sales volume. Despite that, gross profit has increased due to effective cost management. The EBITDA of the Natural Resources business in the first quarter 2021 stood at THB 31 million, decreasing by about 86% quarter-on-quarter, but increasing quite a lot year-on-year. In this regard, Bangchak recorded the share of profits from OKEA of THB 38 million in the first quarter 2021. OKEA's production volume has increased quarter-on-quarter but decreased year-on-year in accordance with its natural decline curve, though it has been offset by higher gas and oil selling prices, coupled with the fact that there was no impairment or reversal of impairment record in the first quarter. Whereas there was a reversal of impairment for Yme in fourth quarter 2020. Moreover, an impairment loss was booked for OKEA in the first quarter of 2020. The exploration and evaluation expenses also increased in the first quarter 2021 for the new exploration well called Jerv, which has been concluded that the petroleum discovery is not sufficient for our commercial operations. Since there was not much change in the currency, the currency gain on loan decreased as Norwegian krone remained stable in the first quarter 2021, while the impact was felt more intensively in the fourth quarter 2020 due to the 10% appreciation of Norwegian krone against U.S. dollar. With reference to BCPG's update, we are of the view that the performance of a hydropower plant in Laos PDR will improve in the second quarter of 2021 from its seasonality effect. Meanwhile, the construction progress of the transmission lines from Nam San 3A and 3B projects to Vietnam is now about 39%, which should be completed in the second quarter 2022, though the construction for Vietnam site should be completed by the end of 2022 before commencing the distribution of electricity to Vietnam's electricity authority. Last, but not least, there will be 3 power plants in Japan to achieve the commercial operation date in the end of 2021 with a total capacity of 65 megawatts. BBGI is going to submit the IPO filing in the third quarter 2021, with the IPO scheduled in the first quarter of 2022. And with our collaboration with Manus Bio, a [ subsidiary here ], WIN Ingredients is going to launch a sweetener product in the middle of 2021, targeting the Southeast Asia region, including Thailand, Vietnam, Indonesia and the Philippines. We are now preparing for the registration of the sweetener with the Food and Drug Administration in order to distribute the products in those 4 countries. In the meantime, the construction of refined glycerin plant is now completed, and we are in the process of executing the commissioning test, while the construction progress of the ethanol plant is currently 77%, and this plant will contribute the capacity of 200,000 liters per day, which we can expect the commercial operation date in the first quarter of 2022. There are a number of projects that are under development for OKEA. For instance, Yme is potentially going to yield its first oil in the second half of 2021. Yme's major product yield is oil, and OKEA has 50% stakes in it. The production volume net to OKEA has been projected to be 7.5000 (sic) [ 7,500 ] barrels per day, which should be about 4.9000 (sic) [ 4,900 ] barrels per day in the first year of production. Meanwhile, Hasselmus is a gas field extended from Draugen with the FID in progress and should be finalized in the second quarter of 2021. The production is likely to commence in 2023. Even though Bangchak has decreased shareholding proportion in Lithium America Corporation (sic) [ Lithium Americas Corp. ], we still hold an offtake right of up to 6,000 tons per year. Currently, the construction of Caucharí-Olaroz in Argentina is in progress with the first production targeted in the middle of 2022. However, a potential delay is expected due to the transmission of COVID-19. To recap key events in the first quarter 2021, there was a 39-day turnaround maintenance for refinery and BCV Innovation Company Limited, a wholly owned subsidiary of Bangchak, has invested in WINNONIE of THB 50 million. Also, Bangchak has paid the dividend to shareholders at the rate of THB 0.4 per share on April 22, 2021. A Lastly, BBGI has issued its first debenture with the rating of BBB+, which have been well received among investors with 5x over subscription. Apart from the operational highlights already reported, Bangchak recorded the reversal of impairment on asset amounting to THB 400 million due to the higher valuation of investment in OKEA as the oil and gas price continued to increase as opposed to the impairment loss of THB 1,400 million from Nido's asset impairment in the first quarter of 2020. Meanwhile, the share of profit has improved significantly from the previous year, given a significant amount of impairment loss for OKEA and the major slump in oil and gas prices. Besides, Star Energy Group Holdings Pte. Ltd. also contributed the share of profit amounting to THB 121 million in the first quarter of 2021, improving quite a lot year-on-year due to onetime transaction in the first quarter of 2020. In comparison with fourth quarter 2020, it is noticeable that the selling and administrative expenses have decreased quite significantly, resulting from Bangchak's intensive OpEx control measures continuing from 2020. The employee-related expenses and maintenance expense take up the majority of the administrative expenses, whereby this category is usually high in the fourth quarter of every year. As mentioned, there was a reversal of the impairment loss of THB 400 million in the first quarter of 2021 while the share of profits from joint ventures and associates also decreased quarter-on-quarter due to OKEA's reversal of impairment loss in fourth quarter 2020, resulting in the share profits for OKEA of THB 255 million in the fourth quarter of 2020 as opposed to THB 38 million in the first quarter 2021. On the other hand, the share of profits contributed from Star Energy Group Holding Pte. Ltd. increased to THB 121 million in the first quarter of 2021 compared to the loss of THB 74 million in the fourth quarter 2020 due to the onetime refinancing expenses of about THB 170 million. Total assets increased by 1% quarter-on-quarter, while liabilities decreased by 4% and equity increased by 7%. In this regard, trade and other current receivables increased by 27% quarter-on-quarter, mainly driven by higher average selling price in line with the global oil price. However, there was a 13% drop in inventory in the first quarter of 2021 due to high stock accumulated in the fourth quarter of 2020 of about 3.3 million barrels in preparation for the turnaround period in the first quarter of 2021. As of March 2021, the inventory has dropped to about 1.8 million barrels, while crude inventory has declined slightly by about 200,000 barrels. There was not much change in PP&E in the first quarter of 2021, though the CapEx for the turnaround and 3E project stood at THB 1,010 million together with the depreciation of THB 1,035 million. As for liabilities, trade and other current payables decreased by 22% quarter-on-quarter, mainly due to lower trade payables for BCPT due to the increase in purchase volumes, where there was an increase in average purchase and price. Equity increased by 70% from the net profit of THB 2,642 million in the first quarter 2021, coupled with the currency exchange differences on translating the financial statements of THB 874 million. The beginning cash stood at THB 21,651 million, with transactions throughout the entire quarter amounting to THB 578 million. A certain amount of cash was allocated for the short-term deposit of THB 2,995 million and with the foreign exchange adjustment of THB 253 million. The ending cash was reported at THB 18,330 million. With regards to cash movement, sources of cash stood at THB 3,394 million, while use of cash amounted to THB 3,972 million. Net cash generated from operations stood at THB 2,141 million and long-term loan from financial institutions amounted to THB 1,111 million, while interest and dividend received was THB 142 million. In terms of cash disposal, short-term and long-term loan repayment coupled with financial costs, amounted at THB 1,963 million. PP&E stood at THB 1,232 million together with the tax payment of approximately THB 50 million and loan granted to related businesses of about THB 160 million.