Here’s a Thai blue-chip company that offers a 6% dividend yield

What happened?

For investors looking at the Singapore stock market to discover dividend-paying stocks, there is a wealth of opportunities with many companies offering a decent dividend yield. 

However, did you know that there is a Thai blue-chip company trading on the Singapore stock market which offers a dividend yield of above 6% too?

PTT Exploration & Production (PTTEP) a leading producer of natural gas and crude oil in Southeast Asia. About 70% of its assets are in Thailand and other parts of Southeast Asia.

In 2023, PTTEP raised its dividend per share to THB 9.50 from THB 9.25 in the previous year. Based on its share price at the market close on 22 March 2024, this would represent a dividend yield of 6.3%.

Let us find out more about PTTEP and its prospects in the coming year. 

What you need to know about PTTEP

#1 – PTTEP reported strong 4Q23 earnings 

PTTEP reported its 4Q23 earnings in late January. Its core net profit (excluding one-time items) in 4Q23 is US$603mn, an increase of 12% from 3Q23. 

The increase in core profit is driven by a 2% increase in sales volume and 1% reduction in unit cost. 

Moving into 2024, PTTEP expects sales volume to improve almost 8% in 2Q24 compared to the previous quarter, driven by the ramp up of G1 project in April. 

#2 - Dubai crude oil price rose 6% from December

PTTEP is expected to benefit from higher oil prices, as the selling price of its liquid products are linked to global oil prices. 

As shown in the chart below, we have seen an increase in Dubai crude oil prices from US$77/bbl in December 2023 to US$82/bbl currently. 

Around half of PTTEP’s revenue came from sales of liquid products (oil and condensate) while the other half is natural gas. 

Domestic gas prices are expected to stay relatively flat through the year at US$5.7/mmbtu (Metric Million British Thermal Unit).

In the latest IEA Oil Market report published in February, IEA expects global oil demand to grow 1.2 million barrel per day in 2024 against the expected increase in world oil supply of 1.7 million barrel per day.

Despite IEA’s forecast of easing oil market in 2024, in January, extreme weather conditions across North America have caused production loss. At the same time, OPEC+ started the voluntary output cut. The two factors combined resulted in global production loss of 1.4 million barrel per day in January from December 2023. 

In addition, escalating geopolitical tensions in the Middle East including situations in the Red Sea have added further momentum to oil prices so far this year.

According to IEA, the low oil inventories exacerbate the price impact of supply and demand shocks and may limit the industry's ability to respond to unexpected strength in demand or disruptions to supply.

#3 - PTTEP expects 9% volume growth in 2024

PTTEP is ramping up production of G1 project located in the Gulf of Thailand. The significant increase in volume is scheduled to start in 2Q24. 

Volume growth is expected to be largely concentrated at G1 project. Thailand needs output from G1 as it would replace the demand of imported Liquefied Natural Gas (LNG) of which prices are doubled domestic gas prices.

For the year 2024, the company expects its sales volume to grow 9% from 169mmboe (million barrel of oil equivalent) in 2023 to 185mmboe in 2024. 

PTTEP’s 5-year Production and Sales forecast (in thousand barrel of oil equivalent per day) 

#4 - Low risks of government intervention

PTTEP’s selling prices of oil are determined by global prices. The government has never made any price intervention into the domestic Exploration and Production (E&P) business. And this is likely to stay unchanged. 

In order to control prices at consumer levels, the Thai government in recent months has tried to intervene into the pricing mechanism of refined products (at oil refineries and gas stations levels) and power tariffs (at PTT level) 

However, domestic E&P business has been well-protected. 

Domestic supply of oil is accounted for only 12% of Thailand oil demand. Hence, any government price intervention will not be enough to bring down prices which are determined by imports. 

Realizing the minimal benefits of intervention, the government has left the E&P industry alone to ensure steady output domestically.

#5 - Strong cash flow and high dividend payment

In 2023, PTTEP generated cash flow from operation of US$4.4bn. Its capital expenditure in 2023 was US$2.4bn. PTTEP accumulated more cash on its balance sheet through 2023 even after the dividend payment of US$1.1bn. 

In 2023, PTTEP paid a total of Bt9.5/share as dividend, equivalent to 49% of PTTEP’s earnings per share. PTTEP has historically paid around 50% of its profit as dividend to shareholders. 

As at the end of 2023, PTTEP has US$0.5bn of net cash position (i.e. cash on hands exceeds borrowings). 

As part of its energy transition’s strategy, PTTEP has announced the transaction to buy Seagreen Offshore Windfarm in Scotland for US$690mn. The amount will be funded by cash on hands. 

The transaction does not have significant impacts to its balance sheet and does not affect its ability to pay dividend, in our view.  

PTTEP’s Dividend Per Share and Payout Ratio  

Find out how much dividends you would have received as a shareholder of PTTEP SDR in the past 12 months with the calculator below.  

Learn more about PTTEP SDR's dividend history here. 

What are the risks of PTTEP?

One of the key risks relating to PTTEP would be possible delay of G1 project ramp up and weaker oil prices.

G1 project is the single-biggest contributor of volume growth for PTTEP in 2024. PTTEP plans to achieve the targeted growth in 2Q24.

While gas prices in Thailand are relatively stable, oil prices could be volatile and affect PTTEP’s profitability. PTTEP’s selling prices of liquid products are linked to global oil prices. IEA forecast that oil production will exceed demand growth in 2024. 

Lastly, we also need to be mindful about the risks relating to Thai SDRs. In particular, a further weakening in the Thai Baht against the Singapore dollar may lead to a lower dividend yield for holders of the Singapore Depository Receipt.

What would Beansprout do?

As an oil and gas exploration and production company, PTTEP is directly leveraged to oil prices. In addition, PTTEP is expected to grow its production volumes in 2024, backed by its healthy reserves.

Based on its dividend per share of Bt9.5 in 2023, PTTEP is currently trading on a dividend yield of 6.3%. 

As such, we would consider PTTEP if we are looking for a company that may benefit from higher oil prices, and offers an attractive dividend yield. 

The PTTEP SDR trades under the stock code TPED after being launched on the Singapore Exchange last year. Apart from PTTEP, the other two SDRs currently traded are CP All (TCPD) and Airports of Thailand (TATD).

From 1 April 2024, there will be five more SDRs that will be traded on the Singapore Exchange, offering more options for investors looking to invest in Thai blue-chip companies.

These include Delta Electronics, Gulf Energy, Siam Cement, Advanced Info Service (AIS), as well as Kasikornbank (KBANK).

Here’s a quick summary of why these companies might be worth a closer look:

• Delta Electronics: Largest electronics manufacturer in Thailand

• Gulf Energy: Thailand's top energy producer

• Siam Cement: ASEAN's largest industrial material conglomerate 

• AIS: Thailand's largest telecommunications conglomerate partially owned by Singtel 

• KBANK: Thailand's best domestic bank 2023 

SDRs trade on the Singapore Exchange in Singapore Dollars (SGD). The same trading hours for the Singapore Exchange apply to the trading of SDRs, which is 9 am to 5.16 pm SGT currently. 

SDRs are tradable by all investor types, as they are classified as Excluded Investment Products (EIP). While this product is available to anyone with a basic understanding of financial instruments, do make sure that you are aware of the product characteristics and risks before you invest in it. 

You will be able to buy Singapore Depository Receipts directly through a stock trading platform which offers trading on the Singapore Exchange.

Click here to read our earlier article explaining what are Singapore Depository Receipts. 

For a more detailed analysis on PTTEP, read our previous article here.

You can also find more resources at the SGX product page.