IRPC

Downside limited. Gradually accumulate IRPC reported 2Q14 net profit with a decrease of 48.1%qoq, slightly worse than expected. However, normalized profit is still projected to stabilize in 2H14. In a long-term outlook, the profit will strengthen sign

IRPC Plc

- Net profit falls 48.1%qoq, slightly worse than expected

IRPC posted 2Q14 net profit at B178m, dropping 48.1%qoq, slightly worse

than expected due to the following reasons: 1) Market GRM dropped

45.9%qoq; 2) profit from petrochemical business decreased 26.5%qoq, and

3) there was B62m impairment expense for the fired vacuum gas oil

hydrotreating unit (VGOHT). However, positive factors in this quarter are 1)

stock gain of B944m and 2) hedging gain of B975m. Overall, 1H14 profit is

B522m net, reversing from a net loss of B1bn in the same period last year

and making up 20% of our FY2014 forecast.

- FY2014 forecast cut likely

We might slash our FY2014 profit forecast to reflect 1H14 profit that turned

out substantially below our projection, awaiting only solid information about

extraordinary items in 2H14, e.g. property damage provision for IRPC’s fire

accident and non-recurring profit from its land sales, to start the revision.

For the earnings in 2Q14, profit from the core business, refinery and

petrochemical, might stay flat from the previous quarter; the profit in 2H14

depends mainly on Delta Program, which is projected to start generating at

least B1bn in benefit, hedging gain, and other businesses of the company

that can generate regular profit.

- Worth investing in long term. Buy

We derive 2014 fair value at B4.07 and reiterate BUY. The share price

decline has possibly partially absorbed the bad news, while in the long run

IRPC still has potential to grow strongly from its investment plan.