IRPC

IRPC Plc

IRPC posted 3Q12’s net profit at B2.1bn, reversing from a net loss of B4bn in
2Q12 but still lower than our projection due to our overestimation of stock
gain and reversal of inventory valuation using lower of cost or market
(reverse LCM) by B1bn while the company booked the 2 items at only
B1.71bn or around US$3.32/share in 3Q12. Meanwhile, other items remained
in line with our projection. Market GIM (gross integrated margin) stood at
US$6.48/ton, dropping 10%qoq because spread of petrochemical products
has contracted from 2Q12. Although average product price has risen, price of
raw material, Naphtha, has increased at a higher rate (along with global
crude oil price). Moreover, there is also support from petroleum business
from market GRM that has hiked as well as total refinery volume in 3Q12 that
has grown 5%qoq to 178,000 bbls/day or around 16.36 million bbls. In
addition, in 3Q12 there was also a FX gain of around B518m from Baht
appreciation. Overall, earnings of IRPC in 9M12 still faced a net loss of
B975m, compared with a net profit of B6.3bn in the same period last year.

Maintain forecast. Continued norm profit growth foreseen in 4Q12
Preliminarily, we still maintain our profit forecast for 2012. Norm profit in
4Q12 is projected to continue growing from 3Q12 in all business lines. Profit
from petroleum business would grow remarkably from a high season during
winter of many countries worldwide in which demand for oil, diesel and jet
fuel in particular, would increase. Moreover, the oil reserves in the US and
Europe are now substantially lower than normal. If the winter is colder than
usual this year, there would be increasing demand for oil as reserves, which
will benefit the refinery business. At the same time, demand for
petrochemical products is also projected to increase on seasonal effect and
the hope that China, major petrochemical product consumer, would return to
impose an economic stimulus package in the near future, which would lead to
product restocking again. Furthermore, in 4Q12 the company would begin to
recognize income and profit from the PRP extension project (propylene) with
production capacity of 100,000 tons/year and the lube base oil extension
project with TDAE production capacity of 28,000 tons/year and 150-BS
production capacity of 38,000 tons/year which have complete construction
since early 4Q12. Additionally, there would be recognition of profit from a
sale of 150 rais of land at B240m in total (after tax), accounting for 18% of
2012’s profit forecast from IRPC’s plan to sell totally 4,000 rais of land (from
15,000 rais) within the next 5 years, which we have still not included in our
forecast.

Buy on weakness to reduce risk from profit taking after earnings report
We change to use 2013’s fair value (DCF) at B5.46/share and reiterate to buy
but only when the price weakens in order to reduce risk from profit taking
after 3Q12’s earnings report. Petroleum and petrochemical businesses are
project to have positive factors in the next 1-3 months, while PER in 2013
has dropped to only 10.7x, which is lower than the sector’s average of 12x.