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• PTTGC said in a filing to the stock exchange that its board on Mon approved a US$288mn investment budget for LLDPE Expansion Project. The project consists of (i) LLDPE production capacity expansion of 400,000 tons per annum and (ii) hexene-1 production capacity of 34,000 tons per annum. The hexene-1 is a co-monomer for LLDPE production. The feedstock for the expansion will come from those expired ethylene sales contracts to external customers. The project, which is expected to be completed and start commercial operation in FY18 will boost PTTGC’s total polyethylene production capacity to 1,995,000 tons per annum.
• If LLDPE-ethylene spreads remain similar to the US$160/ton level seen in 1QFY15, we reckon that this project will add US$35mn per annum to EBITDA, accounting for less than 5% of EBITDA forecast. In addition to the above domestic expansion project, PTTGC is also looking at the possibility of a petrochemical complex in the US with ethane from shale gas to be used as feedstock.
• For the meantime, we rate PTTGC shares a ‘NEUTRAL.’ Our target price is now under review.
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