MOL raised to BUY, TP HUF 2,500 - In good shape to withstand the impact of coronavirus

We reckon that MOL is relatively better prepared than some of its regional peers to face a tough market environment characterised by depressed crude oil and gas prices and sluggish consumption of motor fuels. The earnings pressure from weak hydrocarbons prices should be partially relieved by numerous measures taken by the management to adjust its operating and capital expenditures in order to lower the upstream portfolios break-even towards USD 25/bbl and to reduce the 2020e organic capex to below USD 1.5 bn. Gas price regulation in a number of markets is also adding resilience to MOLs upstream portfolio, enabling the company to sell part of its gas at premium to European spot market prices. Moreover, additional crude oil production coming from the recently acquired interest in ACG field (Azerbaijan) should enable MOL to more than offset the natural decline of production in mature fields (in HU and HR) and lift the overall oil and gas output by >5% in 2020e. Having achieved a strong integration between refining and petchem, MOL is taking advantage of a flexible allocation of refining capacity between motor fuels and petchem production, thus increasing the output of naphtha (i.e. feedstock for petchem) and lowering the output of gasoline. Finally, MOL has a financial headroom of ca. USD 2.0-2.5 bn (cash + credit lines) even after the payment for the acquisition of upstream assets in Azerbaijan (USD 1.6 bn). Our DCF model yields a new 12m target price of HUF 2,500 (prev. HUF 3,150), which implies an upside potential of almost 25% and warrants a stock re-rating to BUY from HOLD.