IRPC

IRPC Plc

Investment thesis: Meeting with management confirmed our mid- to long-term optimism over earnings accretions from Phoenix projects, particularly after 2013. However, we remain tactically negative on the stock at this moment because MS expects oil prices to slump over the next six months and there isn’t yet any sign of margin recovery. We still prefer PTT and BANPU within Thai Energy space.
3Q11 numbers wrap—the highest core earnings of 2011 … IRPC posted red ink of Bt183m versus a profit of Bt2.98bn in 2Q11, due to stock loss of US$4.1/bbl. Operationally, core earnings expanded 48% QoQ to Bt1.8bn. Market GIM touched its highest point since the 2008-09 crisis of $10.3/bbl, up from 2Q11's $8.3/bbl; the 9M11 average is $9.1/bbl, in line with our full-year forecast of $9.2/bbl. The firm refining and chemical margin environment also boosted its refining utilization rate to 82% from 80% in 2Q11.
…but 4Q11 could turn to be the worst: Solid core earnings in 3Q11 will be followed by the worst number of the year in 4Q11. The firm halted the whole complex for a 45-day turnaround, which will squeeze the refining run rate to 60%. Management guided that there will also be one-off expenses totaling Bt700mm, as a result of the shutdown. With weaker QTD refining and chemical margins, we model for core 4Q11 earnings of only Bt310m.
Phoenix projects made good progress … IRPC’s board has so far approved 13 developments of a total of 14 with a budget of US$1.34bn—most of the projects have already obtained EHIA licenses, principally the Propylene Booster due to be commissioned by 2H12. The Upstream Project for Hygiene and Value-Added Products, the most sizable investment, which comprises about 65% of total CAPEX, will open for construction tender by March 2012—COD by 1Q15. Meanwhile, the Dry Port Commercialization appears to be the only project for which approval is pending, as a further feasibility study is needed.  
…and will start to boost the bottom-line after mid 2012: Management expressed optimism about the start-ups of two key developments, the Propylene Booster and the Lube Group 1 Specialty Products, by mid-2012 with projected EBITDA accretions of US$80-100m/year. The completion of the Propylene Booster development will not only expand IRPC’s total Propylene capacity by 32% to 412KTPA, but will also enable the refinery to ramp up production from 80% currently. The project will convert long residue from crude processing into high-value Propylene products. Whilst, the second development will upgrade lube base oil to high value-added lube specialty products, such as Treated Distillate Aromatic Extract (TDAE)—which is almost double the price of conventional lube oil.