Watch for Refining Stocks after Last Week’s Market Cap Loss of over THB7.7 Billion

The government’s proposal for voluntary gasoline subsidies has caused investors to dump shares in 6 major refining companies, wiping out a total of THB76.8 billion in market value in just 6 trading days. Analysts anticipate negative reactions to the share prices of refiners, urging investors to avoid TOP, BCP, IRPC, and PTTGC.


The Permanent Secretary of the Thailand Ministry of Energy, Kulit Sombatsiri, announced on 16 June that the emergency meeting of five economic agencies, including the Ministry of Energy, Ministry of Finance, Office of the National Economic and Social Development Council, Bank of Thailand, and Bureau of the Budget, led by the Prime Minister, has approved measures that will be proposed to the cabinet for approval this week (21 June) in a bid to mitigate fuel prices.

Oil refiners will be asked to voluntarily provide up to THB21 billion in diesel and gasoline price subsidies. The measures consist of: 1) keeping the marketing margin (MM) for oil stations at THB1.4/liter; 2) implementing a temporary profit-sharing scheme for refiners for three months in Jul-Sep 2022, including a diesel subsidy of THB6 billion per month and a gasoline subsidy of THB1/liter; and 3) directing profit sharing in excess of 50% from PTT-owned gas separation plants (GSPs) into the oil fund, estimated at THB1.5 billion per month.

Shares of 6 major refining companies fell by 13.33% last week (10-17 June), losing out about THB76,800 million in market value. Among these companies, Thai Oil Pcl. (SET: TOP) and PTT Global Chemical Pcl. (SET: PTTGC) were hit the hardest, losing over THB22,000 million each.

IRPC Pcl. (SET: IRPC) saw a loss of THB10.2 billion, followed by Star Petroleum Refining Pcl. (SET: SPRC) lost around THB8.6 billion, while Bangchak Corporation Pcl. (SET: BCP) and Esso (Thailand) Pcl. (SET: ESSO) suffered losses of THB7.9 billion and THB4.5 billion, respectively.


FSS International Investment Advisory (FSSIA) expects negative reactions for the share prices of oil stations, refiners and PTT, for four reasons. First, the THB1.4/liter cap on MM should have a limited impact on oil stations. Second, the effect of the diesel subsidy of USD15/bbl (THB3/liter), which amounts to a THB6 billion monthly subsidy for the 60 million liters per day (mlpd) of diesel consumed in Thailand. Third, FSSIA projects a USD5/bbl (THB1/liter) subsidy for gasoline with an aggregate cost of THB0.7 billion per month based on the country’s 20mlpd monthly gasoline consumption. Fourth, the monthly subsidy burden on GSPs would be THB1.5 billion for PTT, based on its projected profit in excess of 50% of net profit, mainly generated from the ethane, propane, NGLs, and LPG used by PTTGC to produce PE and PP. We estimate that LPG, the only product classified as petroleum produced by GSPs, accounts for around 20-30% of their production.

Based on the total monthly subsidy cost of THB8.2 billion (THB6 billion for diesel, THB0.7 billion for gasoline, and THB1.5 billion for GSPs), FSSIA estimates that the four government-owned refiners; TOP, IRPC, BCP, and PTTGC would be the most impacted. As SPRC and ESSO are both controlled by US companies, they are less likely to see an impact as they did not respond to the government’s requests even in 2008 when TOP (THB0.9 billion), BCP (THB0.4 billion), and IRPC (THB0.5 billion) willingly subsidized the fuel price. FSSIA forecasts SPRC and ESSO’s 3Q22 net profit will be THB1-2 billion lower if they are forced to comply.

Meanwhile, KGI Securities said that although it expects the refinery market to be pressured significantly by this negative news, it see an opportunity to accumulate SPRC and ESSO amid sky-high refinery margin this year as they are expected to not join the program if Chevron and ExxonMobil, the US-branded parent companies, do not change their policies.