IRPC

IRPC Plc

Recover to high profit in 3Q12, supported by oil price and olefins spread

We are strongly convinced that refinery stocks would be outshining in the rest of 2012 due to 2 following reasons. 1) GRM has been rising. Although 3Q is normally a low season, GRM (Singapore) in 3Q12 has made a quarterly high at US$9.2/bbl. 2) Global crude oil price has increased. Recently, Dubai price has hiked by US$20/bbl or around 22.4% from the closing price at end-2Q12. IRPC is another company that will benefit from these 2 factors,reflected from earnings in 3Q12 which could revert to a high net profit.Preliminarily, we project that IRPC would be able to book stock gain at the same amount of stock loss in 2Q12 at around US$7/bbl or B3.44bn (which we have still not included in our forecast). Moreover, petrochemical business
is another factor to boost earnings in 3Q12, especially olefins line which has shown the most positive outlook in the industry. Price of downstream product, plastic resin, has rebounded again after stabilizing for several weeks, while prices of upstream product, ethylene and propylene, are
increasing continuously. We project that price of olefins product in the rest of the year will be in an uptrend from rising demand as a result of product restocking in preparation for goods production for sale during the year-end festive season and product price that has increased from a hike of crude oil price (cost push).

Seeds sown; wait to harvest full benefits since 2015 from Phoenix

IRPC is now under a cultivation period. During the next 3 years (2012-2014) the company will march forward and complete its investment project “Phoenix” as scheduled (2010-2014). The project will enhance production efficiency and create value added for its products under an investment of US$1.4bn or B40bn. Around 80-90% of the investment for the Phoenix (around US$900m) will be made in 2012, which will create value added for the company and allow it to produce at a full capacity of 210,000 bbls/day from the current utilization rate of 180,000 bbls/day. The project is planned to be complete by 2014 and would fully generate benefit for the company
since 2015 onward. Accordingly, solid growth is foreseen henceforth. Furthermore, the company has a plan to sell its investment in non-core businesses in order to reduce its burden. At present, the company has already sold 5 out of 11 companies it has planned to sell. In addition, it also
has a plan to maximize benefits from its current assets, especially the land of more than 15,000 rai. In terms of overseas investment, it will make a joint venture with PTT, but not substantially because it still has a wide chance of organic growth.

Time to outperform. 2013’s PER drops to 9x. Dividend yield is 6.4%

Fair value at end-2012, DCF, is derived at B4.40/share. We still recommend buying from both short-term and long-term positive factors mentioned above. Moreover, considering the share price since the beginning of the year until now, returns from investment in IRPC has been -5.4%, the lowest in the refinery-petrochemical sector and substantially underperforming peers whereas there is a sign of earnings recovery in 2H12. Consequently, we believe the share price would return to outperform the market in the next 3 months.