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 third quarter 2021 Opportunity Day featuring the announcement of the operating performance in key business progress in the third quarter of 2021. My name is Suwat [indiscernible], Executive Vice President, Financial Controller; and Bundit Hansapaiboon, Executive Vice President, Planning and Trading business, will join me in delivering the presentation today. Bangchak has been recognized both at regional and international levels. For instance, the 2021 SET Award was a representation of our outstanding performance in innovation and sustainability. Key activities in the third quarter have been quite diverse. Inthanin has provided official sponsorship for an esport event organized by PSG esport team with the aim of reaching our mortgage generation Z and millennial prospect customers. In the meantime, Vunani has launched their transportation and delivery services using electric motorcycles. Besides BBGI has released new products targeted at the B2C market under the Brand B nature plus, for example, skin care items, wrinkle treatment products and products that protect skin from free radicals. In terms of business portfolio, we have invested in a new company, BTSG and increased capital in our trading flagship BCPT. There was also a divestment of needle petroleum. Meanwhile, BCPG has invested in VRP Energy, a utility-scale energy storage business and the filing for BBGI was completed in September 2021. As for the ESG initiatives, we have come up with the support program to alleviate the falling prices of agricultural products such as mango tins, pineapples, eggs or Longans. Furthermore, we also initiated COVID-19 and flood relief projects by supporting fuel expenses to those in need. Also, Bangchak has been producing Euro 5 standard diesel for the third consecutive year to help reduce air pollution. On the financial aspect, OKEA has been consolidated to the statement of financial position from July 1, 2021 onwards. Bangchak and BCPG have issued debentures in the third quarter, which have been very well received among investors with 3x over subscription. The EBITDA in the third quarter stood at THB 7,531 million contributed by 5 core businesses. For refinery and trading businesses the crude run was reported at 111,000 barrels per day with operating gross refinery margin of USD 3.07 per barrel and the inventory gain of THB 1,261 million. We also recorded an extra income received from the delayed construction penalty of THB 433 million. The total sales volume of the marketing business has declined slightly quarter-on-quarter before improving in the fourth quarter once the lockdown was lifted and people resume working at offices, leading to increased mobility and commute. The marketing margin was recorded at THB 0.73 liter. For the power plant business, the electricity sales have significantly improved due to seasonal operation of the dams in Laos. On the other hand, sales volume of the bio-based business may have softened as a result of COVID-19, but the overall EBITDA has increased due to an extraordinary item from UVE's IPO of THB 616 million. As for the Natural Resources business, the EBITDA stood at THB 3,112 million in the third quarter whereby OKEA was at an advantage from gas sales at the United Kingdom along OKEA to make a significant contribution in terms of revenue. The refinery and trading businesses recorded the EBITDA of THB 1,891 million in the third quarter of 2021. Upon resuming from the major turnaround in the first quarter, the crude run has gradually ramped up from 107,000 barrels per day in the second quarter of 2021 to 111,000 barrels per day in the third quarter of 2021, with the capacity almost reaching 100%. With reference to the product yield proportion, UCO highlighted in yellow color, had an increased yield in the third quarter, which is in line with our execution plan to drive more niche products. Despite the fact that the third quarter is the low season with flood disasters, persisting COVID-19 and low demand of gas haul and diesel. However, the utilization rate has been pushed to 93%. The increase in the UCO product yield at 11% served as an important factor aligned Bangchak's refinery to maximize its production capacity. Nevertheless, the gross refinery margin is dependent upon the crack spreads and crude premium. Though the crack spreads have recovered slightly in the third quarter, crude premiums still remain rather expensive, resulting from the economic recovery in several countries, potentially causing the gross refinery margin in the third quarter to soften a little. In the big picture, though the gross refinery margin has softened slightly, global oil demand is gradually increasing, causing the oil price to rise accordingly. And consequently, the inventory gain is still present. Resulted in EBITDA of THB 1,891 million in this quarter. The refinery could run as of the first 9 months of 2021, stood at about 95,000 barrels per day, mainly due to the maintenance shutdown at the beginning of the year before increasing to 110,000 barrels per day in the third and fourth quarters. With that, the average crude run throughout the entire year will be about 98,000 to 99,000 barrels per day. In 2022, we are of the view that the crude run should be fully maximized due to domestic demand recovery from October onwards. We have also identified signs of higher oil demand, coupled with our plan to maximize UCO production and sales, potentially leading to the increase in refineries capacity fully at 120,000 barrels per day. Besides product crack spreads have started to improve as well, with very clear signs of improvement in the fourth quarter across all products. The refinery business unit has implemented the Fast Plus project, featuring process improvement initiatives throughout the value chain. For instance, work processes, yields, logistics and energy efficiency. This project has been executed by our staff members with the estimated benefits of approximately THB 1,000 million per year, serving as another driver to further strengthen our gross refinery margin. The marketing business has reported the EBITDA of THB 562 million in the third quarter with the sales volume gradually picking up after the lockdown measures were lifted. The net marketing margin stood at THB 0.73 per liter, while the retail oil market share improved year-on-year to 16% as of the first 9 months of 2021. The number of service stations as of September 2021 was 1,253 stations with 739 branches of Inthanin and about 190 outlets of convenience stores. The non-oil business hereby plays a critical role in drawing traffic into our service stations. According to the service station expansion plan, there will be about 1,300 stations at the end of 2021. There will also be unique design service stations that we have been doing for 3 to 4 years now. These service stations will help draw more traffic and boost sales revenue with a target of 61 unique design service stations by the end of the year. In terms of the digital experience, customers can now fill up their tanks using credit card points. Besides, we are going to launch a collaboration platform between Bangchak and KTB soon. So please stay tuned for it. EV chargers will be available at over 100 sites across the country by the end of this year. EV chargers are now available at service stations up country as well, and customers can look up in Bangchak application to see where chargers are available, which should be at every 100 kilometers along the highway. There are 739 Inthanin stores as of September 2021, and the number should reach 820 by the end of this year. We also have food trucks to draw more customers into our service stations and there will be food truck festivals held every Friday, Saturday and Sunday until the end of this year at Bangchak's [indiscernible]. Customers can check out on Bangchak's website to see more details. The power plant business reported EBITDA of THB 1,179 million in the third quarter, supported by the water season in Laos, which has helped boost electricity generating performance together with the share of profit from our geothermal plant in Indonesia. A solar power plant in Chiba, Japan just achieved the commercial operation date with capacity of 20 megawatts. In Thailand, the first phase of the solar rooftop project in Shumai of 7.7 megawatts has just commenced commercial operations, and then the second phase is now under construction. BCPG has just announced a solar farm project in Taiwan of 170 megawatts in pipeline, potentially enlarging the company's power business portfolio in the future. The bio-based business reported the EBITDA of THB 890 million in the third quarter. The sales volume has softened quarter-on-quarter, mainly due to the lockdown, but recovery is well underway. BBGI has launched its own brand B Nature Plus with a wide array of new products to release in the fourth quarter. Meanwhile, Wind Ingredients Company Limited in partnership with Manus Bio has planned to release new products, natural sweet are into the market upon acquisition of licenses from the Food and Drug Administration. BBGI is expected to proceed to the IPO in the first quarter of 2022. OKEA continues to deliver solid operating results mainly driven by higher oil and gas demand getting close to pre-COVID-19 level and the easing of lockdown measures in several countries. OKEA's production volume has increased significantly quarter-on-quarter after resuming from a 31-day maintenance shutdown in the second quarter. Hence, higher sales volume has contributed to the increase in revenue of THB 3,822 million. [ Yima ] has commenced operations in October 2021, with the capacity of 5,600 barrels per day, increasing the size of portfolio for OKEA. The production guideline net to OKEA in 2021 is about 15,500 to 16,500 barrels of oil equivalent per day. And in 2022, production should increase to 18,000 to 19,000 barrels of oil equivalent per day. Meanwhile, the increase in gas price can potentially support OKEA's operating results to improve.