August 07, 2014

PCOR’s 2Q14 earnings lower sequentially

In a press statement, Petron Corp (PCOR) announced 1H14 net earnings of P3b. This implies 2Q14 net profits reached P0.8b, a reversal from last year’s losses of P1.07b but down sharply QoQ from P2.23b in 1Q14.

Our take: Regional crack spreads were lower in 2Q14 than 1Q14, and this may have resulted in lower gross margins for PCOR. The one-month maintenance shutdown from February to March may have also affected refining margins in 2Q14.

The shutdown was implemented to allow for the tie-in of various equipment in preparation for the completion of PCOR’s US$2b refinery master plan phase 2 (RMP-2) project this year. Given the lower crude run in 1Q14, PCOR relied heavily on imported refined products, to compensate for the low inventory levels of internally refined fuel at the start of 2Q14.

PCOR’s RMP-2 project has been finally turned over and is now undergoing pre-commissioning / pre-testing. As a result, we expect operating costs to rise in 3Q14 while refining operations may suffer, thus leading to lower margins.

Although earnings could again end up weak in 3Q14, profits should improve once RMP-2 starts operating by 4Q14/1Q15. Barring any hitches, RMP2 should drive PCOR’s earnings substantially higher in 2015 due to improving margins and higher volume sales. – WealthSec