IRPC

IRPC Plc

Below estimate on lower marketing GIM

IRPC unveiled a 3Q12 net profit of Bt2,142m against net loss of Bt3,864m for 2Q12. The number was, however, much below our estimate and the consensus number of Bt3.1-3.3bn. The key discrepancy was lower-than-expected marketing GIM (our assumption was US$7.5/bbl versus reported GIM of $6.5/bbl). The core number was a loss of Bt49m versus a Bt904m profit for 2Q12.  

Result highlights
Stock gains (including reversal of LCM) were US$3.3/bbl, as expected, versus losses of $7.0/bbl in 2Q12. The plant’s utilization rate also improved QoQ—the refinery run rate rose to 83% from 80% in 2Q12 and aromatics and olefins utilization soared to 85% and 97%, respectively, versus 63% and 88% the previous quarter. But falling marketing GIM outweighed the effect of the production ramp-ups. IRPC reported only $6.5/bbl—down from $7.2/bbl in 2Q12.
Sharp declines in utilities and chemical margins dented marketing GIM, despite a big jump in GRM—down to US$0.8/bbl and $2.4/bbl, respectively, from $1.7/bbl and $2.9/bbl. Management said the firm has reallocated the costs among its business units, which brought on utilities margin squeeze. That said, we think GRM and chemical margins should be lower than the firm’s reported numbers. 

Outlook
We remain positive about the 4Q12 outlook. The bounce in chemical prices in Sept should buoy IRPC’s market GIM, given that its price realization typically lags price changes by one month. The start-ups of the Propylene Booster and Lube Base Group 1 projects in late Sept will also boost margin. Based on current prices, we expect the two projects to add about $0.8/bbl in the fourth-quarter.

What’s changed?
Given weaker-than-expected marketing GIM for 3Q12, we have slashed our FY12 profit projection by 42% to Bt1,797m (from Bt3,093m previously). Our revised model indicates a bottom-line for 4Q12 of Bt2,772m, up by 29% QoQ.  

Recommendation
Despite operational disappointment in 3Q12 and our bearishness about the refining/chemical margin outlook for 4Q12, we fundamentally like IRPC over the long-term. The raft of the Phoenix projects is bearing fruit and gains on pipeline asset monetization could further boost forward profitability. In order to reflect our recent earnings forecast downgrade, we have cut our DCF-based target price to Bt4.9 from Bt5 previously.