On Monday, Morgan Stanley (NYSE:MS) downgraded shares of Thai Oil (TOP:TB) (OTC: TOIPY), shifting its rating from Overweight to Equalweight and significantly reducing the price target to THB30.00 from the previous THB62.00. The adjustment follows concerns regarding potential setbacks and execution risks associated with the company's ongoing project.
According to InvestingPro data, the stock is trading at a P/E ratio of 7.65x and maintains a notable dividend yield of 7.03%, having consistently paid dividends for 20 consecutive years.
The firm highlighted that Thai Oil's project could encounter substantial delays and operational challenges if there is a need to replace the existing contractor consortium, comprised of Samsung (KS:005930) E&A and Saipem (BIT:SPMI). This replacement could necessitate a considerable increase in manpower by approximately 18,000 workers.
Morgan Stanley noted that, due to cost inflation, Thai Oil's return on capital employed (ROCE) might drop below 7% post-tax at mid-cycle margins after 2028. Despite these challenges, the firm believes that the stock price has already factored in the projected earnings per share (EPS) of Bt3.8 for 2025 and Bt4.9 for 2026, with a long-term P/E ratio of 8-10x, which is in line with valuations of its peers.
Over the last three months, amidst reports of project delays, Thai Oil's market capitalization has decreased by $1.3 billion, with the stock dropping 41.17% in just the past week. This decline is roughly equivalent to the inflation in project costs, excluding a potential $0.5 billion in penalty payments that might be levied on contractors.
The analysis by Morgan Stanley indicates a cautious outlook for the Thai Oil stock, taking into account the various factors that could impact the company's financial performance in the coming years.
InvestingPro analysis suggests the stock may be undervalued, trading at just 0.37x book value. Subscribers can access 12 additional ProTips and comprehensive financial metrics to make more informed investment decisions.
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