PTT Public Company Limited (PTT) Earnings Call Transcript & Summary

Good morning, analysts, fund managers, PTT staff. My name is [indiscernible] from PTT IR. Welcome to PTT Analyst Meeting for the third quarter of 2024. We are doing this forum virtually, available through 2 platforms. First, Facebook Live for Thai and PTT-IR Foreign for English. We have simultaneous interpretation to ensure equal information access; and second, through Microsoft Team. Today, we will start with performance results of Q3, 2024 by CEO and CFO. [Operator Instructions] May I introduce executives of PTT Group here with us today, starting with Dr. Kongkrapan Intarajang, Chief Executive Officer and President; Khun Pattaralada Sa-Ngasang, Chief Financial Officer. We would also like to introduce Khun Wuttikorn Stithit, Chief Operating Officer, Upstream Petroleum and Gas Business Group; and Khun Kris Imsang, Chief Operating Officer, Downstream Petroleum Business Group. So may I give the floor to CEO, Dr. Kongkrapan to brief you on performance results.

Good morning. Greetings once again, dear analysts, fund managers. May -- well, I will present the overview and then the CFO will present results. I think this is the first analyst meeting introducing our new CFO officially, PTT Group's vision, we will share with you -- we'll update you on our strategies, our results and outlook. Our vision on together for sustainable Thailand and sustainable world. This is consistent and continuous. May I start with strategy execution where we stand now, highlights on business and followed by outlook, and then CFO will share in details performance of the third quarter and 9 months of the year on strategy. So we divide into hydrocarbon and power upstream. May I recap the top part, the blue band, the gist of different business units. What we do for each business and lower part in green progress. Exploration and production because unit cost of PTTEP is quite low. Therefore, the key success factor is to continue to find new supply sources and keep unit costs low, whereas for gas, we have to work on cost competitiveness, efficiency enhancement and working closely with regulators, and it is going well. LNG is another important business where we can create new growth opportunity that we continue to seek as well as streamlining and achieving synergy, good progress. PTTEP in Thailand, Malaysia, Myanmar and UAE, it has accelerated exploration and development, a number of promising locations in Malaysia, in Thailand. Well, in Malaysia, we have a workforce of more than 500. UAE, we're making progress there as well. Likewise, Myanmar, PTTEP is meeting targets. Gas business working with regulators, be it Ministry of Energy, ERC, we work closely to find optimum benefits for the country while ensuring PTT sustainable business. LNG is critical within our group. We have demand as well as assets. We have Terminal 1 of PTT, Terminal 2 joint venture with [indiscernible]. We have a strong trading team that can source imports and LNG trading opportunities. So these 3 elements enable us to go deeper. Now we get things in order in Thailand, we are ready to expand beyond power. TPSE, the picture is clear apart from maintaining reliability for PTT Group, they champion decarbonization for PTT Group. It can create energy mix of renewable gas and going forward, hydrogen SMR. Therefore, making its electricity output greener, it can enable us to meet the carbonization target. TPSE has achieved a lot in its business and strategy plan, what we call electricity, energy mix model. The plan is ready. It is being implemented. Downstream, Petchem refineries, we know that it's highly competitive with over supply. So we need to restructure trading, enhances our competitiveness worldwide, or we want to be a mobility partner for Thailand. The investment direction has to be asset light and adjust portfolio appropriately progress. If you recall, 3, 4 years ago, we did P1 to foster synergy within the group and share revenues billions of baht in import, export of products. Feedstock, we are implementing D1, which is domestic 1. We look at the whole product portfolios to achieve synergy. This is going to bear fruit. And next year, lots of questions concerning our portfolio. Basically, we want to find strong partners to enhance our performance. In any case, flagship is flagship. We value being flagship. We have to fit to these factor to drive our strategy. Flagship remains sound and strong. Amidst ultra-competitive environment of oil and petchems, we need partners with feedstock market and cutting-edge technology. These are qualities we looked for. We have made headways. We have engaged FA to do documents and et cetera, not just doing road shows immediately. We know that people are interested. Trading, our network keeps expanding domestically and internationally OR, we've expanded mainly EV charging stations and also OR has spun off its nonperforming business aligned with the growth strategy, what we no longer do well, then we dispose them to be lighter to seek new opportunities. So that's our direction. Next, on non-hydrocarbon, starting with EV value chain by way of recapping, we have revisited the issues of where to play, right to play, which part of the value chain, where PTT is showing, and we should go in we speed up. Charging, we are competitive there. So we have done single channel to the market, PTT and OR together, expanding to support mobility partnership with OR. And we are finalizing various business models, how to expand, how to secure strong partners. These are work in progress. Logistics, the picture is clear. We have to be asset light, sticking to PTT's core business, we are restructuring. Pipelines, optimization, seeking strong partnerships, things that do not go well, we exit. Life science policy and direction is self-funding from partnerships and seeking alternative fundings going forward. Now we see good results. LOTUS in T1 is going well. We use LOTUS as anchor for expansion. Apart from pharmaceuticals, there are medtechs and Innobic is pursuing PTT is investor to support them to grow. Innobic has expert expertise to conduct its business. The key is self-funding. Sustainability, this is tied to our growth as I said last time, to ensure Thailand's energy security, gas is transition fuel. Thailand has 50% of supply. it will ensure reliability and competitiveness of PTT and the country. The focus is still on gas. We shall -- it's not possible to do gas without decarbonization and that's the key success factor for us to stay competitive by coupling gas with decarbonization through hydrogen, CCS projects that are progressing well. We have a sustainability framework in place. This is group-wide. We start dialoguing with partner on hydrogen investment. CCS, the plan is clear. Now we are talking with external stakeholders. CCS and hydrogen for industry sectors, apart from allowing for profitability and decarbonization, it also presents opportunities. I will give you more details in the future. OpEx. Well, operational excellence is something within -- that we can control, and we do well. We have brilliant track record, tens of billions, reflected back. In bottom line, we continue to press ahead. There are rooms to press ahead with EBITDA uplift. We do both outside in and inside out engaging consultants, introducing new benchmarks and technologies for us to pursue this within PTT Group. We are conducting due diligence in operations. Lots of rooms in therefore EBITDA uplift, maintenance, procurement, sales and marketing. And we are benefiting from advancements of technology, AI that we can deploy and integrate things overlap, for example, visual -- digital transformation, we have done quite a bit, and now we are introducing more of AI. In part, it will help with OpEx and improving our work process. Now we assess organization, why using new technology [indiscernible]. We will see Quick-Win to -- for outcomes to be manifested in EBITDA uplift and cost cutting. In terms of human resources, transformation, governance, they go hand-in-hand alongside digital transformation for corporate culture to be ready for change. It's progressing well, so far, so good. Now we have -- both the numbers and graphs are clear by year end. We see from pictures. Now in our growth picture, we shall decarbonize. We integrate them as part of our business. There are 3 Cs; portfolio shifting, decarbonization of assets, emissions cuts, carbon capture and storage. Now this is PTT Group-wide picture, PPT and the synergy within the group, starting with climate-resilience business, that is portfolio adjustment. For example, PTT has to adjust the portfolio so that carbons from our business decrease. So we focus on natural gas and LNG as transition fuel exiting coal. GPSC, the fuel will become greener. So they are gradually retiring coal to focus on gas and augmenting with greener include and eventually SMR, that's electricity. So GPSC outputs will become greener and greener or chemicals GC, IRPC, their carbon footprints per production output in life cycle will decrease. So they will seek specialization to reduce emissions, assets straightforward across the group. We are implementing efficiency improvement to achieve flare optimization and use less resources, whereas in energy, electricity used from solar, wind and direct injection of hydrogen new technologies and digitalization to optimize plants operation. So in the end, we should achieve half, but we will have to do it across the group. The coalition, now everybody is conscious. They all know -- they know to do carbon capture if each to it is earned, it will take a lot of resources. We will provide the overview to synergize, to optimize techs and midstream PTT functions in two roles, investment in CO2 liquid capture infrastructure, working with regulators in terms of laws, regulations, incentives and PTTEP captures. So EP can capture in old gas wells or in saline aquifer. It's sandbox is underway in [indiscernible]. PTTEP does the gas separate CO2 at platform and capture CO2 and store reforestation we are doing according to target. So in sum, strategies shared last time things go according to plan. We monitor numbers, figures rigorously OpEx. Transformation of certain businesses, we continue to update you. Business highlights for third Q, PTTEP, as I mentioned earlier, they signed long-term agreements, LNG with Oman, OR has expanded in a number of ways. In non-oil businesses, the Rest Village project, Ohkajhu went public with its IPO, GPSC, the mandate on reliability and energy security alongside flagship decarbonized for PTT Group, TPSC has been able to successfully pursue its renewables investments abroad, Avaada in India. We engage stakeholders internally, externally in the past 6 months to sensitize them about PTT's strategies to engage them. And this year, we have won SET awards, 2024 for fourth consecutive year Innovative Company Awards, Sustainability Awards, IAA Awards for Corporate Excellence. I thank you all. Now let's look at Q3 key drivers oil prices. Oil prices down from start of the year, Dubai petchem stabilized and heading downward. Aromatics start to decrease, while polymer remains the same. However, key performance in the lower part of the chart, according to businesses, upstream and gas help a lot year-to-date. In the middle, you will see that our net income this year compared to last year more or less the same, improved by 2%. CFO will share more details. Exclude extraordinary items, nonrecurring items, we have to adjust forward. We divest assets or monetize assets. We have gains along -- well, offset with impairs in chemicals such as Asahi about TBH 8 billion. So offset each of the impairment and divestment gain and external items. FX stock gain stock loss in RV are bundled together. They are positive. Let's wait for year-end to be definite. These balance each other out, be it assets or extra items in terms of business, we are affected by Singapore gas price policy and shortfall 9 months to the tune of THB 10 billion. But overall, net -- our net income, say, is the same meaning that businesses on their own, improved slightly from last year. My last slide before the CFO outlook for next year. GDP up slightly globally in Thailand, more or less the same gas is interesting next year. JKM LNG remain pretty much the same. However, Henry Hub, which is benchmark for gas price. Henry Hub up considerably -- typically, we see $2 or so next year is projected to rise significantly due to IRA Trump's drilling policies resulting in more supply, more exports to the market. So more supply into the world market, we have to monitor oil outlook next year should be softer for Dubai. For oil, it is projected to decrease GRM. Next year should be lower than this year. So that's the market consensus in light of more supply, OPEC may not be able to cap and control supply and continued soft demand should result in less GRM, petchem, some improve, some soften, more or less the same demand supply upside would only be that if demand increases, economy improves, then it will be better. With all these factors, extreme volume-wise should be better, PTTEP consistently successful in increasing its volume and maintenance of unit cost selling price. Overall, we have to monitor, Henry Hub, JKM. This, we shall see. Gas business, year rate of GSP should improve next year. Petchem likewise, that gas cost should -- they should remain stable. Demand of net gas in Thailand should be more, we should be able to bring forth more Gulf of Thailand gas Downstream. If GDP is better, volume should improve. To some extent, Petchem refinery should remain the same GRM softer, lower year rates. However, petchem upside would be demand already hitting rock bottom 2 years and new supply should not be allowed. Power, domestic consumption should pick up next year alongside recovery, downward trend of feed cost is projected. For non-hydrocarbon, we continue with restructuring of Life Science portfolio. So thank you. May I hand the floor to the CFO.

[Foreign Language] So we see the nonrecurring items, one item in Europe, and that's Innobic, and that's about THB 4 billion. Now to here, major contributors is E&P followed by PTT. So the first line and the second line, PTT, we have the gas trading, which is the highlighter. Well, for P&R, well, this is not so good because of our supply, the economic slowdown and stock loss. But for others, 22%, we have extraordinary items, the divestment of PTT LNG compared to partners. Next, this one, we would break it down by each company. Under PTT Group, we have about 200, 300, 6 flagship companies. And these 6 flagship companies are major contributors to the group. To our left, Q3, that's about THB 35 billion, that's our net profit is softened by 50% to THB 16 billion. Like previously mentioned, there are nonrecurring items. In Q2, we have the extra gain. But in Q3, we have the impairment. And if we exclude those nonrecurring items, this gray box without the nonrecurring items, it would be softened by about 14%, mainly from P&R business and the stock loss because of the softened crude oil price in Q3. Looking down here, breaking down by each business, starting from gas, it's increased more than 100% mainly from the softened gas cost. We would be having some loss for tradings among our flagships all already declared their performance. For E&P, sales volume softened Q-on-Q. At the same time, if you look at the first 9 months, like the COO, CEO has mentioned, performance is quite strong because there's the offsetting of the business as usual, for the extraordinary item, the impairment of the investment and the divestment gain, including external factors like FX gain, but weakened quite a lot at THB 37 in September. So that's offsetting our stock loss because the crude oil price -- average crude oil price is down by 10% and to end is about $5. Now to the waterfall account starting at the beginning, we started at THB 79 billion. For the red boxes, these are the boxes that would cut down on our performance. For example, the margin, which is quite ordinary, GDP doesn't go well. So all the margin of all products, trading, refinery, petrochemical was highly pressured. Stock loss, crude oil price down a lot compared with last year. And then we have OpEx is increased a little bit according to the inflation. Then we have DD&A that's increased by around THB 15 billion. For the positive factor, we have other incomes, which is the extraordinary items, including FX gain and other extraordinary items. For tax, the baseline income decreased. So CIT decreased. So offsetting, we ended at THB 80 billion. So everything is offsetting among one another. Now to the gas business, and trading business before we go to the cash flow and the P&L and then the balance sheet. Now coming to the gas key drivers, we have Q-on-Q and year-on-year. Right here, we would see the average pool gas price compared with last year and this year, you will see that the average pool gas price of last year's higher from average whole year this year. Q-on-Q, Q3 this year and Q2 this year, you would see that gas cost is up by a little bit. So it affects our performance in line with this key driver. For the economy, this year, overall, the use of gas and the performance of gas separation plant U-rate is increasing. For the first 9 months of this year, the U-rate of GSP increased by 10% to 83.5% because we have a G161, which we have more production. But Q-on-Q, Q3 compared to Q2 of this year, it's softened by a little bit as the demand from industrial sectors is down. But the overall picture, we are doing better than last year. Now coming to the EBITDA of gas business. For the overall picture, even though we see higher U-rate of GSP, but looking at EBITDA of 9 years, it softened by 1% with extraordinary item offsetting. For example, for the significant one, you would see the GSP, which is down from THB 16 billion to THB 5 billion, mainly from single gas pool policy. The second one, the gray block here, others, increasing from THB 8.5 billion to THB 11 billion. So that the divestment gain in Q1 from PTT LNG. So we have THB 4 billion more. But for other business, is adjusted according to the increasing sales volume S&M and TM. Now trading business, trading business supports the group performance for the procurement of feedstock and also for sales including out-out trading, profit each quarter is around THB 2 billion to THB 3 billion, but in Q3, it's weakened quite significantly because they have imported crude oil, and we have some cargoes in transit while mark-to-market loss occurred and margin also dropped quite a lot. So it reported its performance at THB 6.6 billion, and year-to-date, it's softened also according to lower trading margin -- trading volume and trading margin. So all in all, 2 businesses, gas and trading businesses in 6 flagship companies, as you might know well, the financial position, PTT Group still have the total asset as high as THB 3 trillion. Looking at the key financial ratio. So we are quite strong and stable. Net debt EBITDA is at 1.8. The threshold is around 2. Net debt equity is 0.44, and the threshold is higher than 1. To your left, you would see that cash might down a little bit from 4.4 -- THB 440,000 to THB 393 billion, and this is to repay the debts and in some major investment. For the APAR, it is down a little bit, equating to the price and the cost of feedstock in crude oil, which is lower than the previous year. But total equity, its higher, but we also paid the dividend. Now the total equity is THB 1,500 billion. For the credit rating, our PTT rating is quite stable, Baa1 from Moody's, BBB+ from S&P Global and FitchRatings. Now to PTT consolidated cash flow, starting, we have about THB 449 billion, short-term investment and cash equivalent, it is this cash. Now for our expenditures, the operating cash flow of the group is THB 254 billion, but for the investing, this is our CapEx and mainly is the investing in our flagship business. The major one is the investment of PTTEP, and that's THB 142 billion. So we have the free cash flow coming in at THB 111 billion for the financing, that's THB 176 billion. So we take care of our shareholders so that we pay the dividend payment and also we pay according to capacity, but we would keep it no lower than peers. So we paid dividend of about THB 81 billion. For the whole group, some company, we have to take care of the gearing so that debt is not too high. And when we do the asset monetization, we would repay the loan earlier than due date. So for the loan repayment, that's around THB 90 billion. Apart from that, that is not material, but we will pay back THB 176 billion according to our financing. For the cash ending, it's THB 393 billion for the whole group. So this is quite stable compared to our total asset of THB 3 trillion. So we would take care of our investment so that this we have enough cash to pay for our investment for the coming period and also to stabilize the performance of the group. Now to PTT Group financial strategy. What is happening in 2024 and a little bit earlier? You see that our business is the business that is mostly in commodity. So it is quite secure like gas and electricity. But for the external factors, we also encounter some difficulties, but we will give priority in keeping cash. So when cash is king, we can improve our yield, invest our cash for the return. The second one is OpEx control. So we rationalize our expenditures, which is appropriate for each group. For the first 9 months, for the whole group, we can save costs about 8% of the budget. For some, there is 0, but for some, we would increase. So 8% safe is about THB 13 billion for the whole group. So this is what we can do internally. Federal, we look forward into the future, and how can we divest ourselves and find strategic partner, we would look for noncompetitive assets and then to book the impairments in advance so that can optimize our performance and to stabilize our performance. For the first 9 months, we look into the timing of the divestment of our non-competitive assets to match the seeking of our strategic partner so that we can also, at the same time, have some more divestment gain. So for the financial, we try to arrange traffic to do the fundraising and also to negotiate for our financial support to support our performance. So this is quite going well. We also do the project financing specifically for some businesses because for some business, we have to provide special project financing to replace the shareholders' portion. So this is our main mission. Also, we look into green financing. And what is of your interest, for sure, the revisit of CapEx, 5-year CapEx plan, CEO and the Chairman Upstream and COO, Upstream and Downstream, we are looking into this plan. And next year, we can communicate with the capital markets. Next year is our challenging year. We get the strategies from the CEO, so we would focus on EBITDA uplift, portfolio rationalization, asset monetization. For the financing, we would use AI to support the CFO. Also, we would consider the capital structure of the businesses under PTT Group. [Statements in English on this transcript were spoken by an interpreter present on the live call.]