A rally partly fuelled by war

Rising global oil prices power energy companies

Punters who played the energy sector realised hefty yields last year, with continuous rises in international oil prices driving high shareholder returns.

Energy stocks outperformed the Stock Exchange of Thailand index, particularly in the last quarter of last year.

In the second half, future crude oil prices on the New York Petroleum Exchange had risen above US$30 per barrel on Washington's war rhetoric, reaching its highest point since May 2001. Last year, average crude oil rose 4.4% to $23.8 a barrel.

Industry experts say the promising returns in energy stocks also reflected the companies' long-term business strategy and expansion plans, which may lead to sustainable growth.

The sector's average total shareholder return, or TSR, ending in December 2002, stood at 31.4%. Average three-year yields were 9%, five-year TSR was -5.2%, but there was a poor -0.6% return during a 10-year period.

Siam United Services Plc (Susco), a medium-sized petrol distributor, was the highest energy stock performer, with a 143.3% one-year TSR.

The sector's smallest company in terms of market capitalisation (646 million baht) did not fare so well for investors for the three-year TSR period, which came in at -8.7% but the returns improved to 35.5% during the five-year period, slipping again to -16.5% over 10 years.

An analyst at Kim Eng Securities said that Susco outperformed other energy stocks last year as a result of a significant turnaround in net profit of 138 million baht, compared with a loss of 63 million baht in the previous year. This was due to an extraordinary gain of 113 million baht as a result of the company's successful debt-restructuring efforts.

Excluding extraordinary items, Susco achieved normalised profit of 50 million baht, versus a loss of 56 million baht in 2001.

Susco's gross margins improved from 5% to 7% last year largely due to rising global crude prices, lower-priced inventory and its policy of closing down some of its unprofitable petrol stations.

For the country's largest energy company, partially privatised PTT Plc, with the highest market capitalisation at 118.2 billion baht, the shareholders' return in 2002, its first full year of trading, registered a healthy 31.6%, slightly above the energy sector's average one-year return.

Pichai Chunhavajira, senior executive vice-president of finance and accounting, described PTT's 20% share gain last year as satisfactory.

PTT's dividend payment last year was 2.85 baht per share or a total of 4.4 billion baht, accounting for 36.4% of net profit or a yield of 6.7%. The payment was higher than the company's dividend payment policy of 30% of net profit.

Mr Pichai said PTT planned to invest about $2 billion (about 85 billion baht) over the next 10 years for the third phase of gas-pipe network, gas separation plants and the Bangkok Gas Ring project.

``We would rather have long-term investors whose investment decisions would be based on the company's fundamentals. However, we will make an all-out effort to deliver a better performance so that our shareholders will enjoy high capital gains as well,'' Mr Pichai said.

PTT's oil unit contributed 67% of its revenues last year of 409.3 billion baht with 5.9% growth year-on-year, boosted by a 4.4% rise in global crude oil prices and a 2.3% rise in volume oil sales, the consolidation of the Thai Olefins Co's sales revenues of 13.2 billion baht last year.

PTT subsidiary PTTEP (PTT Exploration and Production Plc), capitalised at 92.6 billion baht also fared well for investors. One- and three-year yields registered 40.2% and 9.8%, while the five-year TSR came in at -5.6%.

But coal miner and utility supplier Banpu went one better. Capitalised at seven billion baht, it delivered 40.3% in one-year TSR, 17.5% during a three-year period, 1.7% in five and 2.7% in 10-year returns.

Banpu benefited last year from increased revenues from its Indonesian coal operations, among other factors.

Electricity Generation Plc (Egcomp), capitalised at 19.6 billion baht. The company offered 11.9% returns to shareholders last year and 9.7% on a three-year basis.

Machima Kunjara Na Ayudhya, senior executive vice-president of Egcomp, said its healthy performance was a result of financial soundness derived from a long-term power-purchasing agreement with the Electricity Generating Authority of Thailand (Egat). Its Kanom and Rayong Power Plants were still capable to raising output by 1,000 megawatts in line with the upswing in the economy, he said.

``We tend to continuously expand long-term investments in high-potential projects that offer us steady income.''

Ratchaburi Electricity Generating Holding Plc, capitalised at 26.25 billion baht, brought investors a one-year TSR of 25.9% after its first full year of trading. Ratchaburi has a competitive edge with a generating capacity of 3,645MW, which represents 14% of Thailand's total power capacity.

President Boonchu Direksathaporn said the company's investment policy was to focus on projects that offered returns of not les that 15%.

The Ratchaburi power plant has the capacity to raise power generation by 2,000MW. The firm's positive outlook was due mainly to a 25-year power purchase contract with Egat, which holds a 45% stake in the company, Mr Boonchu said.

_ Yuthana Praiwan

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