IRPC

IRPC Plc
- 3Q13 to revive to net profit at B1bn due to stock gain and lower Fx loss
IRPC's 3Q13 earnings result is projected at B1.07bn net profit, rebounding from
2Q13 net loss of B1.16bn, due to these supporting factors: 1) 3Q13 stock gain is
projected at US$3.5/barrel, or B1.7bn in total, improving from US$0.96/barrel
stock loss in 2Q13, as end-3Q13 global crude oil price rose by over US$5/barrel. 2)
Fx loss is expected to decrease from B760m in 2Q13 to B63m in 3Q13, as end-
3Q13 THB has depreciated slightly by 0.48%qoq (IRPC owes US$420m debt in
USD). Excluding two extraordinary items, 3Q13 normalized loss is expected at
B562m, compared to B97m normalized profit in 2Q13, due to the following: 1)
Market GRM is projected to drop by 28.3%qoq to the average of US$2.5/barrel,
along with gasoline and fuel oil spread that decreased implicitly, as well as crude
premium that rose from 2Q13 by US$0.5/barrel. 2) Petrochemical spreads are
likely to fall averagely by 11.4%qoq to US$3.1/barrel, along with HDPE and PP
spread (over 50% of total capacity) that fell by US$20/ton. Moreover, there was a
planned shutdown in the EBSM unit due to tie-ins of expanded plant facility, which
took one month. Power plant, oil tank and pier spreads are likely to stay close to
2Q13 at US$1/barrel. Thus, 3Q13 market GIM would fall by 17.7%qoq to
US$6.6/barrel. Overall, 9M13 net profit would be B70m, compared to 9M12 net loss
at B369m.
- To gain normalized profit in 4Q13 as GRM improves
Preliminarily, we maintain our FY2013 profit forecast. 4Q13 normalized loss is
projected to rebound to make slight profit, as GRM is projected to rise due to
seasonal effect ; winter is coming for many regions, so demand for finished oil,
especially diesel and fuel oil, has risen. Also, there will be annual planned shutdown
for refineries in Europe in 4Q13, lowering fuel oil supply from Europe to Asia. In
4Q13, IRPC would increase usage of domestic crude oil as raw material from 3% of
total oil used to 15%, so GRM would be boosted by US$0.5/barrel as cost of
domestic crude oil is US$3/barrel lower than imported oil of the same quality. IRPC
is expected to recognize profit from hedging, as it has hedged at 50% of its diesel
and fuel oil production capacity. Moreover, B150m profit from land sales and B30m
profit from oil tank leasing would be recognized in 4Q13. Thus, IRPC is projected to
revive, from B959m net loss in FY2012 to B1.24bn net profit in FY2013, and
FY2014 net profit is projected to rebound by 236%yoy, as petrochemical product
spread is predicted to increase.
- Buy when share price weakens. Share price rises rapidly.
Upside limited
We derive end-2013 fair value (DCF) at B4.01. We recommend "BUY" when share
price weakens, as share price has risen by over 15% after we upgrade our
recommendation from "HOLD" to "BUY" on 24 September 2014 until current upside
is 9%. IRPC is currently expanding its investment on Phoenix project to promote
long-term growth, which would be completed in 2015.