Oil refinery stocks fell sharply on Friday with potential losses of between 17-43% in net profits this year after the government asked for the cooperation of companies to channel their profits into the Oil Fuel Fund for three months from July to September to help control fuel prices.
The government is expecting profits from three kinds of businesses: diesel refineries, gasoline refineries and separation plants. Diesel refineries are expected to contribute 5-6 billion baht per month, while gasoline refineries are expected to contribute 1 billion per month. Gas separation plants are to contribute 50% of their excess profits, valued at about 1.5 billion baht per month.
Trinity Securities views any state intervention as causing negative sentiment for the stocks. However, the refineries could choose to not comply because the term "asking for cooperation" suggests it is optional.
The brokerage believes companies in the PTT Group, including PTT Global Chemical (PTTGC), Thai Oil (TOP), IRPC and Bangchak Corporation (BCP), are likely to cooperate, while Star Petroleum Refining (SPRC) and ESSO (Thailand) may not.
Analysts at Trinity Securities said if all refineries need to pay the government a monthly amount of 7 billion baht over three months, each would contribute a total of 21 billion baht to the fund. PTTGC would feel the least impact as it would only lose about 17% of its full-year net profits. Most of PTTGC's profits come from its petrochemical businesses.
It would be a heavy blow for firms with refineries as their core business, with the loss estimated at 30-40% of their full-year net profit.
ESSO is expected to be the most heavily affected as its profits are expected to drop 43% if it chooses to obey the government's request, followed by IRPC, TOP, BCP and SPRC, which would see their annual profits decrease 36%, 35%, 33% and 30%, respectively, said Trinity.
Asia Plus Securities (ASPS) said although it sounds like a request for cooperation, some refineries such as TOP, PTTGC, IRPC, SPRC, ESSO and BCP, as well as gas separation plants, are still unsure whether the request is legally binding and mandatory. The request represents a direct intervention from the government, which interferes with the free market mechanism.
ASPS said the higher gross refining margin in oil businesses is attributed to the Russia-Ukraine war, which is causing the global supply to decline. If the government intervenes and forces refineries to reduce their refining rate, it may encourage them to shift to exports because external prices are higher than domestic prices, said the brokerage.