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Fundamental View
AS OF 22 Apr 2025Petron’s FY24 results improved slightly; we expect Petron’s credit metrics to remain flat to improve slightly in FY25 owing to higher capex and flattish % YoY EBITDA growth amid a single-digit YoY decline in sales volume growth though partially supported by lower crude oil input costs
About two-third of its total revenues are derived from the Philippines and are indexed to Dubai crude prices, which allows for smooth cost pass-throughs and good insulation from crude price volatility.
Free cash flows are typically negative due to inventory fluctuations that outweigh low capex.
Business Description
AS OF 22 Apr 2025- Petron is the largest oil refining and retailing company in the Philippines, and the third largest player in Malaysia. It maintains a 24% market share in the Philippines (followed by Shell and Caltex) and a 20% market share in Malaysia (largest being Petronas), based on total fuel sales volumes.
- Petron has a total refining capacity of 268k barrels/day (bpd) and accounts for about 30% of the Philippines' fuel needs. Its petroleum refining facilities include the Limay Refinery in Bataan, Philippines (capacity of 180k bpd; 67% of total) and the Port Dickson Refinery in Negeri Sembilan, Malaysia (capacity of 88k bpd; remaining 33% of total).
- Petron's refineries process crude oil into a full range of petroleum products including gasoline, diesel, LPG, jet fuel, kerosene and petrochemicals.
- It further markets and retails these fuel products through its fuel service stations located across the Philippines (~1,800 outlets) and Malaysia (>800 outlets).
- Petron sources its crude oil supplies from third-party suppliers, namely Saudi Aramco, Kuwait Petroleum Corporation and Exxon Mobil, which are bought on the basis of term contracts and in the spot market.
- Petron mainly supplies its petroleum and fuel products to customers in Malaysia and the Philippines (~95% of annual revenue).
- Petron is 68% owned by San Miguel Corporation (SMC), one of the largest and most diversified conglomerates in the Philippines based on total revenues and assets. SMC's CEO, Mr. Ramon Ang, is also Petron's CEO.
Risk & Catalysts
AS OF 22 Apr 2025Petron cannot fully pass on higher crude oil input costs to customers in Malaysia.
Petron operates in low-margin business (EBITDA margins ~5%) and maintains elevated credit metrics.
Petron is highly dependent on its Limay petroleum refining complex that makes up two-thirds of its total refining capacity (67%). Any events that disrupt the refinery’s operations could adversely affect Petron’s total revenues.
Key Metric
AS OF 22 Apr 2025| PHP bn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 74.3% | 72.3% | 74.0% | 75.1% | 74.5% |
| Net Debt to Book Cap | 66.3% | 63.3% | 65.5% | 68.2% | 67.1% |
| Debt/Total Equity | 289.4% | 261.6% | 284.2% | 301.4% | 292.0% |
| Debt/Total Assets | 71.3% | 71.2% | 70.2% | 67.6% | 64.9% |
| Gross Leverage | 65.4x | 11.2x | 10.9x | 7.1x | 7.4x |
| Net Leverage | 58.3x | 9.8x | 9.7x | 6.4x | 6.7x |
| Interest Coverage | 0.3x | 2.5x | 2.2x | 2.2x | 1.9x |
| EBITDA Margin | 1.3% | 5.9% | 3.4% | 5.3% | 4.7% |
CreditSight View Comment
AS OF 22 Apr 2025We maintain our Market perform recommendation on Petron. Petron’s c.Apr-2026 perp trades rightfully tighter than SMC c.Jul-2025 perp, which we see as fair given its Opco structure vs. SMC’s Holdco, its cost pass-through mechanisms, and low capex which more than offset SMC’s larger diversified businesses. Overall, we continue to take comfort in Petron’s resilient credit profile, supported by a good cost-passthrough contractual mix that provides good insulation from crude price volatility. We expect Petron to incur higher capex YoY, and expect credit metrics to remain flat-to-improve slightly in FY25 owing to higher capex and flattish % YoY EBITDA growth amid lower crude oil input costs, as well as a further ~PHP 15 bn of preference share issuances.
Recommendation Reviewed: April 22, 2025
Recommendation Changed: January 26, 2022
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Search topics about wealth insights and investments.SMC Global Power
- Sector: Energy
- Sub Sector: Independent Power Producers
- Country: Philippines
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Fundamental View
AS OF 22 Apr 2025We see lower non-call risk for SMC GP’s c.2025 and c.2026 perps owing to strong near-term parental funding support, its recent c.2024 perp refinancing, and recent bond exchange/tender with a new $900 mn c.2029 perp issuance.
We see an improving credit outlook for SMC GP aided by lower thermal coal input costs, new contracts, and capacity additions. Net cash inflows of $2.1-$2.2 bn from the completion of an LNG deal is also positive.
While SMC GP improved its cost passthrough contractual mix from end-FY23 onwards, the company still remains exposed to high thermal coal input costs (~40-50% of contracts).
SMC GP incurs sizable capex that has led to additional debt incurrence and elevated credit metrics.
Business Description
AS OF 22 Apr 2025- SMC GP is a leading power generation and distribution company in the Philippines. As at 31 December 2021, its total generation capacity stood at 4.7 GW, accounting for ~20% of the national grid.
- The bulk of its revenues is derived from power generation (~82%), with the remainder from electricity distribution and retailing (~18%).
- It operates 7 power generating plants across diversified energy sources, comprising coal (~62%), natural gas (~25%), hydro (~12%) and battery energy storage (~1%).
- Through long-term power supply agreements and retail supply contracts, SMC GP either sells electricity directly to customers (including large Philippines power distribution company Manila Electric Company, distribution utilities and other industrial customers), or through the Philippine Wholesale Electricity Spot Market.
- SMC GP acts as the Independent Power Producer Administrator (IPPA) for three power plants (~54% of total capacity), where it has the right to sell electricity generated by the IPPs without having to bear large upfront capital expenditures for plant construction and maintenance.
- SMC GP also distributes and retails electricity services through its wholly-owned subsidiary Albay Power and Energy, which distributes power in the province of Albay, Luzon.
- SMC GP is a wholly-owned unlisted subsidiary of San Miguel Corporation, one of the largest and most diversified conglomerates in the Philippines based on total revenues and assets.
Risk & Catalysts
AS OF 22 Apr 2025SMC GP still has $307 mn/$1.2 bn of c.2025 and c.2026 perps outstanding to be addressed, though we see low non-call risks.
A moderate portion of SMC GP’s off-take contracts do not contain cost pass-through mechanisms. This exposes the company to a rise in thermal coal input costs that could squeeze its EBITDA margins.
SMC GP incurs sizable capex that has spurred additional debt incurrence. Consequently, its credit metrics remain elevated.
Over 80% of SMC GP’s installed capacity is thermal coal or gas-fired, which may be viewed unfavorably from an ESG perspective.
Key Metric
AS OF 22 Apr 2025| PHP bn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 68.8% | 66.7% | 69.2% | 62.8% | 64.4% |
| Net Debt to Book Cap | 53.6% | 57.7% | 66.4% | 59.4% | 57.7% |
| Debt/Total Equity | 220.7% | 199.9% | 224.6% | 168.7% | 181.2% |
| Debt/Total Assets | 81.9% | 79.2% | 79.0% | 73.8% | 73.8% |
| Gross Leverage | 10.5x | 10.5x | 19.4x | 12.9x | 11.9x |
| Net Leverage | 8.2x | 9.1x | 18.6x | 12.2x | 10.7x |
| Interest Coverage | 2.4x | 2.5x | 1.4x | 2.2x | 2.3x |
| EBITDA Margin | 41.3% | 35.9% | 13.2% | 26.4% | 26.6% |
CreditSight View Comment
AS OF 22 Apr 2025We have an Outperform recommendation on SMC GP. We think refinancing risk on the c.2025–2026 perps has meaningfully decreased with the completion of its bond exchange and tender offers. We are comfortable with SMC GP’s improving credit outlook, potential for forthcoming parental support, and management’s willingness and ability to repay the perps. The completion of the $3.3 bn LNG deal is also positive. We continue to see low non-call risk for the c.2025 perps, grow more comfortable with the c.2026 perps that could be refi-ed with new $ perps, and see the 8%+ yields on the c.2029 perps as attractive. Key risks we are watchful of include any weakening of parental funding support (due to SMC’s own sizable infra capex) and overly aggresive capex..
Recommendation Reviewed: April 22, 2025
Recommendation Changed: September 09, 2024
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Fundamental View
AS OF 07 Apr 2025Petronas’ FY24 credit metrics remained resilient even as EBITDA fell as we had expected.
Despite the lower YoY outlook for O&G price realizations in FY25, we expect Petronas’ credit profile to remain resilient in FY25 and maintain its net cash position, aided by resilient domestic demand and still-positive FCFs.
We take comfort in Petronas’ strong support from the Government of Malaysia, given it is strategically vested with Malaysia’s entire oil & gas resources and provides a substantial source of government income.
Sizable O&G and renewable capex and high dividend payouts could restrain improvements in Petronas’ credit metrics and free cash flows.
Business Description
AS OF 07 Apr 2025- Petronas is an integrated oil and gas company, wholly owned and controlled by the Government of Malaysia.
- Its activities span the entire up/mid/downstream value chain both domestically and internationally. Key products and services provided include the sale and marketing of petroleum products, crude oil and condensates, LNG, natural and processed gas, petrochemicals, shipping services, property development and automotive engineering.
- Petronas carries out its exploration, development and production activities via production sharing contracts (“PSCs”), mostly with international O&G companies and Petronas' wholly-owned subsidiaries.
- Its Downstream segment is aimed at refining, supplying, trading, manufacturing and marketing of crude oil, petroleum products, and petrochemical products. Its key projects and factories include Pengerang Integrated Complex (PIC), Sabah Ammonia Urea in Sabah, and Integrated Aroma Ingredients Complex in Gebeng, Kuantan.
- Its Gas and New Energy division was set up in FY19 and groups all of Petronas' LNG, gas and renewable revenues into a single segment. Activities within this division include production of LNG, processing and transportation of gas and solar power production.
- Its 6 listed subsidiaries include MISC Berhad (57.56%), KLCC Property (75.46%), Petronas Chemicals Group Berhad (64.35%), Petronas Gas Berhad (51%), Petronas Dagangan Berhad (63.94%), and Bintulu Port Holdings Berhad (28.52%).
Risk & Catalysts
AS OF 07 Apr 2025Broad growth slowdown concerns could hamper sales of Petronas’ Downstream (petroleum products) and Gas & New Energy (LNG and natural gas) segments.
Prolonged periods of low crude oil prices could harm upstream O&G EBITDA (which typically contributes 50%-70% of total profit after tax), albeit mitigated partly by stronger downstream O&G EBITDA.
Sizable capex on domestic O&G and renewable energy ventures could restrain improvements in Petronas’ credit metrics and free cash flows.
Petronas is regularly required to pay dividends to the Government of Malaysia, which may weigh on its cash flows.
We remain watchful of how the dispute between Petronas and Sarawak state government unfolds, its impact on Petronas’ financials and its market position in the Malaysian O&G sector.
Key Metric
AS OF 07 Apr 2025| MYR mn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 18.8% | 21.1% | 18.4% | 18.2% | 18.0% |
| Net Debt to Book Cap | n/m | n/m | n/m | n/m | n/m |
| Debt/Total Equity | 23.2% | 26.7% | 22.6% | 22.2% | 21.9% |
| Debt/Total Assets | 15.4% | 17.0% | 14.7% | 14.4% | 14.5% |
| Gross Leverage | 1.4x | 1.1x | 0.6x | 0.8x | 0.9x |
| Net Leverage | n/m | n/m | n/m | n/m | n/m |
| Interest Coverage | 15.0x | 20.9x | 33.9x | 24.9x | 21.8x |
| EBITDA Margin | 34.7% | 45.2% | 50.7% | 44.8% | 42.0% |
CreditSight View Comment
AS OF 07 Apr 2025We maintain our M/P rec on Petronas and prefer its existing 2026-2032 and the newly priced 2031. We compare Petronas to Pertamina and think its longer-dateds trade within our fair value range against Pertamina’s longer-dateds. On the other hand, the spread differential between Petronas’ and Pertamina’s shorter-dated have narrowed since Aug-2024, and we see some scope for Petronas’ shorter-dated to tighten. We like Petronas’s larger EBITDA, net cash position, more regular financial reporting than Pertamina and Malaysia’s relative policy stability. With the Petronas vs Sarawak state dispute nearing a resolution, we are more comfortable with the credit though we remain watchful of any negative development should Sarawak further contest the reported agreement.
Recommendation Reviewed: April 07, 2025
Recommendation Changed: September 07, 2020
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Search topics about wealth insights and investments.Pertamina
- Sector: Energy
- Sub Sector: Oil and Gas
- Region: Indonesia
- Bond: PERTIJ 3.1 30
- Indicative Yield-to-Maturity (YTM): 5.339%
- Credit Rating : -/BBB/-
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Fundamental View
AS OF 30 Dec 2024Pertamina enjoys very strong linkages with the Government of Indonesia (GoI) and is assured of extraordinary support in times of distress.
Slightly higher YoY FY24E Brent crude prices could lift upstream margins and overall EBITDA (given the upstream business accounts for >65% of consolidated EBITDA).
Although leverage typically remains low, Pertamina incurs large capex spending that could pressure its free cash flow generation.
High persisting dividend outflows could restrain free cash flow improvements.
Business Description
AS OF 30 Dec 2024- Pertamina is involved in a broad range of upstream and downstream oil, gas, geothermal and petrochemical operations.
- In the upstream sector, it engages in the exploration, development and production and supply of crude oil, natural gas and geothermal energy.
- As for the downstream sector, the company carries out refining, marketing and distribution of oil, gas, fuel products and petrochemical and other non-fuel products.
- As of 31 December 2022, its total proved oil reserves stood at ~1,289 mmbbl (mn barrels of oil) and gas reserves stood at ~817 mmboe (mn barrels of oil equivalent). Its average daily oil and gas production was ~1,044,000 boe per day in FY23. The company owns and operates 6 refineries in Indonesia.
- Under the Public Service Obligation (PSO) mandate, Pertamina is responsible for providing certain grades of motor gasoline, automotive diesel oil, kerosene and LPG at subsidized prices. The subsidized retail price is often times lower than the cost of production, creating a shortfall, for which it receives reimbursements from the GoI.
Risk & Catalysts
AS OF 30 Dec 2024Pertamina’s profitability is materially affected by volatility in oil & gas prices. Prolonged periods of low oil prices could hurt upstream earnings that form the bulk of overall EBITDA (>65%).
As retail prices of certain fuel products are regulated, realized prices may be below its cost of sales.
Pertamina has to initially absorb the shortfall between the regulated retail price and the cost of producing and distributing certain fuel products. If the price of crude oil exceeds the price ceiling set by the GoI, the company may receive insufficient subsidy reimbursements.
Capex typically remains elevated and which pressurizes its free cash flow generation.
Key Metric
AS OF 30 Dec 2024| $ mn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 36.2% | 38.5% | 41.2% | 42.1% | 37.6% |
| Net Debt to Book Cap | 22.4% | 18.9% | 21.9% | 12.5% | 8.5% |
| Debt/Total Equity | 56.8% | 62.5% | 70.0% | 72.7% | 60.4% |
| Debt/Total Assets | 26.4% | 28.3% | 29.9% | 30.8% | 27.4% |
| Gross Leverage | 2.2x | 2.4x | 2.5x | 1.9x | 1.9x |
| Net Leverage | 1.3x | 1.2x | 1.3x | 0.6x | 0.4x |
| Interest Coverage | 8.1x | 7.8x | 8.7x | 11.2x | 8.9x |
| EBITDA Margin | 14.9% | 19.9% | 16.0% | 16.7% | 17.7% |
CreditSight View Comment
AS OF 19 Mar 2025We have a Market perform recommendation on Pertamina. Pertamina’s Jan-30/31 bonds trade 22 bp/24 bp wider than Petronas’ 30/32 bonds, while its longer-dated bonds trade an average of 42 bp wider. We see this differential as fair given Petronas’ solid net cash position, larger EBITDA, and stronger financial reporting quality; we believe the wider differential for the longer-dated bonds is attributable to Petronas’ notes trading tight. We remain comfortable with Pertamina’s full state-ownership, timely fuel subsidy and compensation from the Indonesian government, our expectation for Pertamina’s strategic policy role to sustain, positive free cash flow generation, robust credit metrics and adequate liquidity. That said, its capex remains elevated amid a ramp up in energy transition goals.
Recommendation Reviewed: March 19, 2025
Recommendation Changed: May 16, 2023
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Fundamental View
AS OF 30 Dec 2024PLN enjoys extremely strong ties with the Government of Indonesia (GoI) given its critical policy role of electrifying the nation.
We see a modestly poorer FY24 credit outlook as resilient domestic power demand, flattish power tariffs and insulation from input cost volatility are offset by sizable capex for coal and renewable capacity additions.
President Prabowo’s plans to tamp down on PLN’s monopoly could induce longer-term regulatory uncertainties.
Business Description
AS OF 30 Dec 2024- PLN is involved in the entire electricity value-chain, from power generation, to transmission, distribution and retail.
- It alone accounts for 76% (~47 GW) of Indonesia's generation capacity (of which 8 GW is renewable capacity), while IPPs provide the remainder.
- The company controls and operates the entire transmission and distribution network in the country. It is the sole buyer of electricity produced by IPPs, through power purchase agreements (PPAs).
- It sells electricity to well-diversified off-takers – 41% to households, 25% to industrial customers, 21% to businesses and 12% to others.
- Since 2015, the GoI has gradually implemented monthly tariff adjustments for 13 customer groups, so that rates charged to customers are better matched with production costs.
- However, under the Public Service Obligation (PSO), the company will continue to sell electricity at subsidized rates of 50% to 450-volt amperes (VA) power households and 25% to 900 VA power households. The GoI subsequently reimburses the company for the difference between the subsidized tariff rate and production cost, typically within 2-3 months.
Risk & Catalysts
AS OF 30 Dec 2024The company provides subsidized electricity to certain households for which it subsequently receives reimbursements from the GoI; though these payments tend to get delayed during major events such as COVID-19 pandemic.
In order to increase the country’s electrification ratio to 97%, the company had been mandated by the GoI to develop large electricity capacities through the Fast Track II and 35,000 MW Programs. Implementation of such complex programs has required significant capital expenditure, which has led PLN’s FCF to fall deep into the red in recent years and created a funding gap.
The success of the above programs is also contingent on the company’s ability to source coal cheaply, select quality contractors, acquire land rights and receive adequate subsidy reimbursements from the GoI.
Being primarily a thermal power producer, PLN may be viewed unfavourably from an ESG perspective.
Key Metric
AS OF 30 Dec 2024| IDR bn | FY21 | FY22 | FY23 | 1H23 | 1H24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 29.7% | 28.9% | 27.8% | 26.9% | 27.5% |
| Net Debt to Book Cap | 26.9% | 25.2% | 23.7% | 24.6% | 25.4% |
| Debt/Total Equity | 42.2% | 40.7% | 38.5% | 36.7% | 38.0% |
| Debt/Total Assets | 25.7% | 24.6% | 23.4% | 22.6% | 22.9% |
| Gross Leverage | 5.0x | 4.2x | 4.3x | 4.0x | 4.3x |
| Net Leverage | 4.6x | 3.7x | 3.7x | 3.6x | 4.0x |
| Interest Coverage | 3.2x | 4.3x | 3.6x | 3.9x | 3.2x |
| EBITDA Margin | 28.0% | 30.1% | 26.4% | 33.4% | 29.5% |
CreditSight View Comment
AS OF 19 Mar 2025We have a Market perform recommendation on PLN and prefer its 2047-2050s. While we acknowledge PLN’s higher coal-related ESG risk and potential long-term regulatory concern, we remain comfortable with PLN’s resilient credit profile supported by healthy domestic power demand, good insulation from input cost volatility and strong state-ownership. We see fair spread differential of 20 bp wider than Pertamina; we think PLN’s shorter-dated trade close to fair. Against its own curve, PLN’s 2047-2050 trade on average 56 bp wider than its 2030s; similarly rated Indonesian state-owned O&G Pertamina on the other hand sees an average spread differential of 42 bp across its longer-dated versus its own 2030. We thus see scope for PLN’s long-end to tighten another ~15 bp.
Recommendation Reviewed: March 19, 2025
Recommendation Changed: December 06, 2024
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Fundamental View
AS OF 18 Jun 2024KORGAS is Korea’s sole integrated gas utility company and a quasi-sovereign credit in Korea with an effective monopoly over the exploration & production (E&P), procurement, storage & production, transmission and wholesale distribution of natural gas.
Its credit profile is underpinned by its dominant market position in Korea’s natural gas and hydrogen utility market, and the strong support from the Korean government. This partly mitigates its delayed and incomplete pass-through of gas procurement costs when natural gas price surges, such as in FY22.
We expect its credit profile to improve in FY24 supported by lower natural gas procurement costs and higher gas tariffs, which would partially mitigate concerns over its larger capex planned for FY24 and FY25.
Business Description
AS OF 19 Jun 2024- KORGAS is 54.6% directly/indirectly owned by the Korean Government (Central Government 26.2%, KEPCO 20.5%, Local Government 7.9%). It is Korea's sole integrated gas utility company with an effective monopoly over the exploration & production (E&P), procurement, storage & production, transmission and wholesale distribution of natural gas. It is crucial to Korea's green transition plan to increase LNG generation by 56% by 2036 from 2022. In addition, KORGAS was licensed as Korea's sole hydrogen distribution agency in 2020.
- KORGAS is one of the largest LNG importer in the world and sells imported natural gas to domestic companies in South Korea. As of YE23, KORGAS operates 77 storage tanks at 5 LNG terminals in Incheon, Pyeong Taek, Tong Yeong, Sam Cheok and Jeju. It has 5,178 km of pipeline network nationwide, and is looking to construction additional 440 km by 2026.
- The Korea natural gas industry is divided into wholesale and retail segments. KORGAS is the only wholesaler in Korea, and the regional city gas companies are in charge of supplying natural gas to retail consumers through regional retail pipelines. KORGAS sold 47% of its gas sales to domestic LNG-fired power generation companies (gencos), including the genco subsidiaries of KEPCO and independent power producers (IPPs), and the remaining 53% to city gas companies and heating companies in FY23.
Risk & Catalysts
AS OF 18 Jun 2024Key risks to KORGAS’ standalone credit profile include: (1) Significant depreciation of the KRW against the $ ; (2) Delayed and/or smaller-than-expected retail tariffs hikes; and (3) higher-than-expected capex and investments related to Korea’s green transition.
However, we do not foresee these risks to materially impair KORGAS’ ability to access funding, credit rating and overall credit profile as we expect KORGAS to remain as the sole integrated gas utility company and continue to receive extremely strong financial support from the Korean government.
Key Metric
AS OF 18 Jun 2024| KRW bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 76.6% | 75.7% | 75.8% | 81.3% | 80.7% |
| Net Debt to Book Cap | 75.6% | 74.6% | 74.2% | 79.8% | 79.1% |
| Debt/Equity | 327.2% | 312.4% | 313.3% | 434.4% | 418.0% |
| Gross Leverage | 8.2x | 9.4x | 9.1x | 9.9x | 11.6x |
| Net Leverage | 8.1x | 9.3x | 8.9x | 9.7x | 11.4x |
| Interest Coverage | 3.9x | 3.4x | 4.8x | 5.1x | 2.2x |
| EBITDA Margin | 13.0% | 12.3% | 11.4% | 8.8% | 8.0% |
CreditSight View Comment
AS OF 04 Jul 2024We maintain our O/P recommendation KORGAS. We expect KORGAS’ credit profile to improve in 2H24 supported by higher tariffs and normalizing natural gas procurement costs. We expect KORGAS, which is the sole integrated natural gas utility company in South Korea to continue enjoying solid government support. We view its $ bonds as attractive compared to lower rated Chinese SOEs, BBB-rated low beta Korean corporates and other Korean quasi-sovereigns. In particular, we like its newly issued Jul-29 for the high on-market coupon; for investors looking for defensive short-dated carry, we also like its 27s.
Recommendation Reviewed: July 04, 2024
Recommendation Changed: June 27, 2023
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Fundamental View
AS OF 17 Apr 2024We expect the credit profile of Sinopec, which is one of the three Chinese national oil companies (NOCs) to continue to be underpinned by its strategic role in China’s energy security and the resulting strong government support.
We expect Sinopec’s standalone credit profile to remain supported in FY24 by resilient refined oil demand and improving demand for chemical products as industrial activities pick up and the destocking trend ends.
To note, we use the financials of HKEx listed Sinopec Corp (386.HK) as a proxy for the credit profile of its parent, the obligor of the outstanding $ bonds (BBG: SINOPE).
Business Description
AS OF 17 Apr 2024- Sinopec Group is a Chinese integrated oil and gas (O&G) company and is one of the largest globally & domestically. In FY23, 56.1% of Sinopec Corp' external revenues came from marketing and distribution (i.e. retail and direct sales of refined oil), 13.1% from chemicals, 5.4% from refining, and 5.7% from E&P. Corporate and others segment accounted for the remaining 19.7% of sales revenue, consisting of import and export business, R&D and managerial activities.
- The refining segment purchases crude oil from third parties as well as the E&P segment of the company, and processes crude oil into refined petroleum product. Most of the gasoline, diesel and kerosene are sold internally to the marketing and distribution segment of the company; part of the chemical feedstock is sold internally to the chemical segment, and the other refined petroleum products are sold externally to both domestic and overseas customers. The marketing and distribution segment purchases refined oil products from the refining segment and third parties, and mainly distributes to domestic customers via its wholesale and retail networks.
- In FY23, Sinopec's total oil and gas output was 504 mn barrels of oil equivalent (mmboe), up 3.1% YoY; this included 252/29 mmbbls (+0.3%/-1.9%) of domestically produced/overseas crude oil, as well as 1,338 bcf of natural gas (+7.1% YoY). The average realized price of its crude oil and natural gas was $76.6/bbl and $7.1/thousand cubit feet respectively.
Risk & Catalysts
AS OF 17 Apr 2024Risks: Lower-than-expected domestic sales of refined oil and chemical products due to a severe economic downturn, higher-than-expected crude oil and gas feedstock costs resulted from geopolitical tensions, elevated inventory losses due to tumbling oil & gas prices, and large capex overrun result in a weaker standalone credit profile. However, we expect the strong government support to offset these downside risks. US sanction related headline risks due to US-China tension and other geopolitical risks.
Catalysts: inflow into China $ bonds as a result of improving China macro outlook and US-China relationship; stronger-than-expected recovery in chemical product demand.
Key Metric
AS OF 17 Apr 2024| RMB bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Total Debt/Capitalization | 27.8% | 25.3% | 25.6% | 27.5% | 31.5% |
| Net Debt/Capitalization | 17.3% | 9.4% | 7.6% | 16.3% | 19.8% |
| Total Debt/Total Equity | 38.6% | 33.8% | 34.5% | 38.0% | 46.1% |
| Total Debt/Total Assets | 19.2% | 17.2% | 16.7% | 18.3% | 21.7% |
| Total Debt/EBITDA | 1.6x | 1.5x | 1.2x | 1.5x | 2.0x |
| Net Debt/EBITDA | 1.0x | 0.6x | 0.4x | 0.9x | 1.3x |
| EBITDA/Gross Interest | 12.9x | 16.8x | 20.1x | 16.1x | 14.5x |
| EBITDA Margin | 7.3% | 9.5% | 9.4% | 7.0% | 6.8% |
CreditSight View Comment
AS OF 17 Apr 2024We affirm our Market perform recommendation on Sinopec (A1/A+/A+). A-rated Chinese state-owned enterprises (SOEs), including Sinopec are trading tight due to a lack of new supply and as investors fly to quality amid macro uncertainties in China. We continue to prefer AA-rated Korean quasi-sovereign names for safe carry (like KOROIL, KORGAS, KEPCO) and higher-beta Chinese SOEs for spread pickup.
Recommendation Reviewed: April 17, 2024
Recommendation Changed: May 03, 2021
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group
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Search topics about wealth insights and investments.Korea Electric Power Corp.
- Sector: Energy
- Sub Sector: Utilities
- Region: Korea
- Bond: KORELE 5.5 28
- Indicative Yield-to-Maturity (YTM): 4.858%
- Credit Rating : AA
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Fundamental View
AS OF 22 Mar 2024KEPCO is the sole integrated electricity utility company and a quasi-sovereign credit in Korea. Its credit profile is underpinned by the extremely high level of government support due to its critical policy role in ensuring the nation’s stable power supply.
KEPCO’s operating and net losses narrowed in FY23 thanks to electricity tariff hikes alongside lower fuel costs and its EBITDA turned around.
Its total debt/EBITDA and net debt/EBITDA was elevated at 18.2x/17.7x as of YE23 due to high debt burdens, and we expect its leverage metrics to improve from FY23 but remain at 7-9x due to large capex planned in FY24 and FY25 to develop its nuclear, LNG and renewable capacities.
Business Description
AS OF 22 Mar 2024- KEPCO is a quasi-sovereign credit and the sole integrated electric utilities company in Korea. The company was founded in 1898, 51% majority owned and controlled by the Korean government and Korean Development Bank, and listed on the Korea Stock Exchange/NYSE in 1989/1994.
- KEPCO is the sole provider of electricity transmission & distribution infrastructure and services, and controls ~60% of the nation's installed generation capacity and ~70% of power generation through its six wholly owned gencos: Korea Hydro & Nuclear Power (KHNP), Korea South-East Power (KOEN), Korea Western Power (KOWEPO), Korea East-West Power (EWP), Korea Midland Power (KOMIPO), and Korea Southern Power (KOSPO). In addition, KHNP is the sole nuclear power generation company in Korea. In FY23, KEPCO purchase ~65% of wholesale power from its genco subsidiaries and ~30% from independent power plants. On a consolidated basis, electricity transmission & distribution accounts for over 95% of KEPCO's annual revenues.
- KEPCO is a key implementation entity to carry out the Korean government's energy transition plan responding to climate change. KEPCO plans to fully stop coal generation by 2050. In order to achieve that, KEPCO plans to reduce its coal generation capacity to 23 GW in FY30 (FY23: 32.6 GW), and grow its renewable capacity to 37 GW in FY30 (FY23: 6.6 GW).
Risk & Catalysts
AS OF 22 Mar 2024Key risks to KEPCO’s standalone credit profile include: 1) higher-than-expected fuel costs due to continued increase of international prices of coal, natural gas and oil as well as a significant depreciation of the KRW against the $; (2) inability to pass through high fuel costs due to insufficient tariff adjustment; and (3) higher-than-expected capex and investments related to Korea’s green transition.
However, we do not foresee these risks to materially impair KEPCO’s ability to access funding, credit rating and overall credit profile as we expect KEPCO to continue receiving an extremely high level of support from the Korean government.
KEPCO’s exposure to nuclear power operations and coal-fired power generation may post ESG concerns for investors with an ESG mandate. But this risk exposure is partially alleviated by the company’s gradual shift towards renewable energy.
Key Metric
AS OF 22 Mar 2024| KRW bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 55.2% | 55.3% | 60.1% | 76.9% | 80.5% |
| Net Debt to Book Cap | 54.0% | 54.1% | 58.7% | 75.3% | 78.4% |
| Debt/Total Equity | 1.2x | 1.2x | 1.5x | 3.3x | 4.1x |
| Debt/Total Assets | 42.9% | 43.0% | 46.7% | 59.6% | 64.3% |
| Gross Leverage | 8.7x | 5.6x | 16.5x | -6.9x | 18.2x |
| Net Leverage | 8.5x | 5.5x | 16.1x | -6.8x | 17.7x |
| Interest Coverage | 4.8x | 7.8x | 3.1x | -7.2x | 1.9x |
| EBITDA Margin | 16.5% | 26.5% | 9.8% | (28.3%) | 9.6% |
CreditSight View Comment
AS OF 06 Feb 2025KEPCO is the sole electricity distributor and transmitter in South Korea, undertaking an irreplaceable policy role. Its credit profile is underpinned by excellent government support which allows the company to enjoy strong access to the onshore and offshore funding channels that mitigate its elevated leverage and insufficient cash coverage for short-term debt. KEPCO is in the process of implementing a financial improvement plan and aim to restore its financial soundness by 2027. Its $ bonds provide attractive yield pick-ups compared to lower-rated Chinese SOEs and BBB-rated low beta Korean corporates, in our view. We prefer the new KORELE Feb-28 and KORELE 5.5% Apr-28 for short-dated high-coupon carry and better trading liquidity.
Recommendation Reviewed: February 06, 2025
Recommendation Changed: July 24, 2023
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group