PTT Public : Management Discussion and Analysis Half year Ending 30 Jun 2019

PTT Public Company Limited 2Q2019 2

Management's Discussion and Analysis (MD&A) and operating results for the three-month and six-month periods ended June 30, 2019

Executive Summary

Unit : Million Baht	2Q2018	1Q2019	2Q2019	%Inc. (Dec.)	1H2018	1H2019	%Inc.
		(Dec.)
YoY	QoQ
Sales Revenue	578,787	550,874	570,322	(1.5%)	3.5%	1,111,759	1,121,196	0.8%
EBITDA	100,699	80,523	73,804	(26.7%)	(8.3%)	190,815	154,327	(19.1%)
Net income	30,029	29,312	25,938	(13.6%)	(11.5%)	69,817	55,250	(20.9%)
Earnings per share (Baht/share)	1.05	1.02	0.89	(15.2%)	(12.7%)	2.43	1.91	(21.4%)

In the Second quarter of 2019 (2Q2019), PTT and its subsidiaries reported Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) of Baht 73,804 million, 8.3% decreased or by Baht 6,719 million from the first quarter of 2019 (1Q2019) This was mainly due to Petrochemical and Refining businesses, as well as Oil business from higher stock loss in 2Q2019, following lower crude oil price that decreased from US$ 67.2 per barrel at the end of 1Q2019 to US$ 64.9 per barrel at the end of 2Q2019. Additionally, most of petroleum crack spreads and petrochemical spreads both olefins and aromatics in 2Q2019 also decreased. Nevertheless, performance of gas business group increased when compared with last quarter mainly from PTT's Natural Gas Sales and Marketing businesses (S&M) and Gas Separation Plant (GSP) business following higher sales volume, as well as the performance of Petroleum Exploration and Production Business improved from the rise in both average sales volume and selling prices. Besides, the performance of Technology and Engineering businesses increased mainly from better performance of Global Power Synergy Public Company Limited (GPSC) from the full recognition of Glow Energy Public Company Limited (GLOW)'s performance in 2Q2019. In this quarter, PTT and its subsidiaries incurred additional compensation from the new Labor Protection Act for its affiliates. In this regard,

Net income in 2Q2019 was Baht 25,938 million, 11.5% or Baht 3,374 million decreased from 1Q2019 of Baht 29,312 million, which is in line with the drop in EBITDA as aforementioned. In the meantime, depreciation and amortization of Technology and Engineering businesses, and income tax expenses of Petroleum Exploration and Production Business also rose. In addition, there were higher gain on derivatives from PTT Exploration and Production Public Co., Ltd. (PTTEP) , PTT International Trading Pte. Ltd. (PTTT) and affiliates in Petrochemical and Refining businesses, as well as higher unrealized gain on foreign exchange rate from foreign currency loan due to higher Baht appreciation when compared to the previous quarter.

In the First half of 2019 (1H2019), PTT and its subsidiaries reported EBITDA of Baht 154,327 million, 19.1% dropped Baht 36,488 million or 19.1% from the first half of 2018 (1H2018) of Baht 190,815 million. This was primarily due to the soften performance of Petrochemical and Refining businesses from the declining of most petroleum crack spreads, especially gasoline spread, as well as lower stock gain that resulted from the rise in crude oil price in 1H2018 compared to 1H2019. Olefins and aromatics spreads also decreased. Likewise, gas business group recorded soften performance due to lower gross profit of PTT's GSP business following lower selling prices referenced to significant dropped in petrochemical prices and higher natural gas cost. Nevertheless, the recurring profit improved from Petroleum Exploration and Production Business's performance, which increased from the rise in average sales volume and selling prices, as well as, Technology and Engineering businesses' performance mainly from GPSC's acquisition of GLOW since March 2019. In 1H2019, PTT and its subsidiaries recorded higher selling and administrative expenses. In this regards, net income in 1H2019 was Baht 55,250 million,

PTT Public Company Limited 2Q2019 3

dropped Baht 14,567 million or 20.9% from 1H2018 of Baht 69,817 million in line with the decline of EBITDA as aforementioned and higher depreciation and amortization expenses from PTTEP and GPSC. Nonetheless, there were lower income tax expense following decreasing in net incomes, loss on derivatives, and higher foreign exchange rate gain due to the appreciation of Thai Baht against US Dollar in 1H2019 when compared with the depreciation of Thai Baht in 1H2018.

As of 30 June 2019, PTT and its subsidiaries had the total assets amounting to Baht 2,381,175 million, increasing by 1.2% from 31 December 2018, mainly from property, plant and equipment from GPSC's acquisition of GLOW. Whereas the total liabilities were recorded at Baht 1,082,065 million including the interest-bearing debt amounting to Baht 621,484 million, increasing by 4.6%, which is mainly from GPSC's loan for the acquisition of GLOW. The total shareholders' equity was Baht 1,299,110 million, decreasing by 1.4%, mainly from dividend payment and PTTEP's currency translation differences from Baht appreciation.

PTT Public Company Limited 2Q2019 4

Economic Overview in the second Quarter of 2019

The world economy in 2Q2019 expanded at a slower pace than 1Q2019. Specifically, US economic growth slowed on the back of inventory destocking after rising at a rapid pace during the past three quarters, and negative impact from the trade conflict with China, as well as faded tax-cut boost. Nevertheless, the still strong labor market added meaningfully to growth, allowing the Federal Reserves (the Fed) at its June 2019 meeting maintained its policy rate at 2.25 -2.5%, but signaled possible rate cuts for the remainder of 2019 in the midst of higher economic risks. Meanwhile, the EURO area's economic recovery slightly slowed amid manufacturing production slowdowns, following the revised auto emissions standard in Germany, and political uncertainty within the region. However, solid labor market and record-low policy rates still supported the growth. In China, economic growth slowed in 2Q2019, the slowest pace in 27 years, but it was in line with the government's target of 6.0-6.5%, amid Beijing's pro-growth policies, particularly tax cuts and liquidity injection to buffer trade dispute's impact with the US. The International Monetary Fund (IMF) in July 2019 revised down its global growth forecast for 2019 to 3.2% from its April 2019 forecast of 3.3%.

According to the International Energy Agency (IEA)report at July 2019, global oil demand in 2Q2019 averaged at 99.6 million barrels per day (MMBD), increasing from 1Q2019 at 98.8 MMBD and from 2Q2018 at 98.8 MMBD.

Unit :

US$/barrel

Average Dubai crude oil price Average Gasoline Crack Spread Average Diesel Crack Spread

Average FO Crack Spread (180 - 3.5%S)

2Q2018	1Q2019	2Q2019	%Inc.(Dec.)
YoY	QoQ
72.1	63.5	67.4	(6.5%)	6.1%
12.1	3.7	7.5	(38.0%)	>100%
14.6	12.8	12.4	(15.1%)	(3.1%)
(4.4)	0.6	(2.3)	47.7%	>(100%)

1H20181H2019 %Inc. (Dec.)

68.0 65.4 (3.8%)

12.9 5.6 (56.6%)

14.7	12.6	(14.3%)
(4.7)	(0.9)	80.9%

Dubai oil price in 2Q2019 averaged at US$67.4 per barrel, increasing from 1Q2019 at US$63.5 per barrel (2Q2018 at US$72. 1 per barrel) . This was due to strict crude oil compliance of OPEC+ who recently extend production cut until March 2020, and the tension at Strait of Hormuz. However, the uncertainty between the US and China trade agreement and global economic slowdown also impact on crude oil price.

Petroleum product prices in Singapore spot market: Average gasoline crack spreads in 2Q2019 was at US$7. 5 per barrel, increasing from 1Q2019 at US$3.7 per barrel (2Q2018 at US$12.1 per barrel) due to lower supply from US and Asia refineries' shutdowns as well as explosion incident in US. Moreover, there was higher demand during summer season. Meanwhile, average diesel crack spreads in 2Q2019 was at US$12.4 per barrel, slightly decreased from 1Q2019 at US$12.8 per barrel (2Q2018 at US$14.6 per barrel) from lower demand due to US and China trade tension and soften industrial sector in Europe. Average fuel oil crack spreads in 2Q2019 was at US$-2.3 per barrel, decreasing from 1Q2019 at US$0.6 per barrel (2Q2018 at US$ -4.4 per barrel) from lower bunker demand in preparation ahead of the International Marine Organization (IMO) 2020 regulation.

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Dubai crude cracking margin in Singapore in 2Q2019 averaged US$3. 5 per barrel, slightly increasing from

1Q2019 at US$3.2 per barrel (2Q2018 at US$6.0 per barrel), amid increasing demand of gasoline and several refineries' shutdowns in Asia.

Petrochemical prices of Olefins and Aromatics in 2Q2019 mostly decreased from 2Q2018 due to the slowdown in economic growth amid higher naphtha price. High density polyethylene ( HDPE) price was lower from 1Q2019 due to weaken demand, resulting from the impact of US and China Trade war and global economic slowdown, while polypropylene ( PP) price was slightly higher from 1Q2019 due to demand from Vietnam and Indonesia supporting the price. For Aromatics, the benzene ( BZ) price and BZ spread slightly recovered from 1Q2019 following firmer crude oil price, and the higher BZ price in the US caused the arbitrage window from Asia to the US to open. Also, demand recovered from the resumed operation of styrene monomer (SM) plants after the scheduled turnaround last quarter, which supported BZ price. Paraxylene (PX) price and PX spread decreased from 1Q2019 mainly due to concern on oversupply market after the full start up of several large-scale capacities in Asia.

	Unit :			2Q2018			1Q2019			2Q2019				%Inc. (Dec.)			1H2018			1H2019			%Inc.
	US$/barrel										YoY		QoQ							(Dec.)
	HDPE: CFR SEA	1,384		1,093			1,080		(22.0%)	(1.2%)		1,382			1,086		(21.4%)
	PP: CFR SEA - Film	1,301		1,127			1,143		(12.1%)	1.4%		1,286			1,135		(11.7%)
	BZ: FOB Korea	842		590			625		(25.8%)	5.9%		867			607		(30.0%)
	PX: CFR Taiwan	984		1,080			909		(7.6%)	(15.8%)		975			995		2.1%

Thai economy in 2Q2019 grew at a similar pace as in 1Q2019, following a continuous expansion in private consumption in almost all spending groups, underpinned by government measures supporting low- income group. Still, government expenditure continued to grow, specifically from investment in public- private partnership projects ( PPP) , as well as spending for government personnel. As for private sector, the wait-and-see stance was seen following the political transition and a decline in inventory accumulation after a spike in the previous quarter. Meanwhile, tourism expanded at a slower pace, following a slowdown from Chinese tourists due to China' s economic slowdown, high base effect from last year, and more competition from neighboring countries. However, merchandise exports contracted, in tandem with economic slowdowns from key trading partners. The Bank of Thailand in June 2019 has revised down its Thai economic growth forecast for 2019 to 3.3 % from its previous estimate of 3.8% in April 2019.