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Asian Refining Sector -----------------------------------------------------------------------------------------
Refining margins at mid-cycle averages — may still see upside as utilisations improve
● Most Asian refiners have significantly outperformed benchmarks
since October 2010. Share prices have been driven by large EPS
upgrades, as 2H demand strength led to margin gains. This EPS
momentum has not turned yet, though stocks have eased a bit.
● The recent correction in crude, along with seasonal 2Q weakness
in oil demand can lead to near-term refining margin corrections.
Inventory losses can also impact quarterly EPS run rates. Yet we
note margins are only at mid-cycle averages; downsides should
be limited – especially if utilisation rates continue to trend up.
● This is likely to happen. We estimate refining capacity growth can
average a 0.7% CAGR in 2011/12. Even with slowing demand, we
see utilisations improving from 82.5% in 2010 to 84.1% by 2012.
● Any current easing/ weakness might therefore be an opportunity
to buy for late-year seasonal strength. On CS HOLT, Thai Oil and
RIL have relatively low implied expectations (but may have other
specific issues). SK Innovation and S-OIL do not seem to fully
price in consensus estimates. Despite the outperformance/
upgrades, continued strength in margins may still lead to upsides.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asian Refining Sector -----------------------------------------------------------------------------------------
Refining margins at mid-cycle averages — may still see upside as utilisations improve
● Most Asian refiners have significantly outperformed benchmarks
since October 2010. Share prices have been driven by large EPS
upgrades, as 2H demand strength led to margin gains. This EPS
momentum has not turned yet, though stocks have eased a bit.
● The recent correction in crude, along with seasonal 2Q weakness
in oil demand can lead to near-term refining margin corrections.
Inventory losses can also impact quarterly EPS run rates. Yet we
note margins are only at mid-cycle averages; downsides should
be limited – especially if utilisation rates continue to trend up.
● This is likely to happen. We estimate refining capacity growth can
average a 0.7% CAGR in 2011/12. Even with slowing demand, we
see utilisations improving from 82.5% in 2010 to 84.1% by 2012.
● Any current easing/ weakness might therefore be an opportunity
to buy for late-year seasonal strength. On CS HOLT, Thai Oil and
RIL have relatively low implied expectations (but may have other
specific issues). SK Innovation and S-OIL do not seem to fully
price in consensus estimates. Despite the outperformance/
upgrades, continued strength in margins may still lead to upsides.
