Relative valuation of Thai oil public company limited.

Abstract

This thematic paper aims to value the share price of Thai Oil Public Company Lim-ited (TOP) base on relative valuation method which is classified as one of business valuation method that compares a firm's value to that of its competitors to determine the firm's financial worth. It’s also an alternative to absolute value models, which try to determine a company's intrinsic worth based on its estimated future free cash flows discounted to their present value. Under the relative valuation methods, various multiples i.e. EV/EBITDA, P/E and P/BV are applied to value the stock together with benchmark those multiples with regional and global industry peers which are rela-tively well comparable with the company. Based on the aforementioned valuation methodology, the target price of TOP shall be worth to 80.8 Baht per share at the year ended 2016 equivalent to 10.7% upside gain from the current share price at 73 Baht per share, therefore it is indica-tive for BUY recommendation. The research suggests many strong rationales sup-porting the BUY recommendation on valuable stock named TOP. Those rationales include strategic business model of refining company which has fully integrated with aromatics and lube base oil business considered as business’s value chain enhance-ment and as well expand to more stable power business to reduce volatility of the re-fining business resulting in sustainable growth, the competitive cash cost producer among peers, one of the most reliable and complex refinery, and healthy regional and domestic industry outlook. However, there are risks factors affecting the company for example volatility of energy sector leads to cyclicality of the company which fi-nally impact to its profit margin, the company seems to have their well-designed mit-igation coping and narrowing chances and impacts with those risks. In conclusion, the valuation study is to suggest firm’s value which the method still has some limitations. Therefore, the value must be looked carefully. However, the study can still provide guidance on business valuation for investors determining whether a company's stock is a good buy.