IRPC

IRPC Plc

- New long-term business plans to top up profit after Phoenix completes
IRPC's new CEO revealed his new business vision at the analyst meeting, mainly on
operating strategies for next 5-10 years, focusing on maximizing asset
management efficiency. IRPC will continue Phoenix project in next few years.
Another IRPC's major project is UHV (upstream project for hygiene & value added
product), which will complete in 2H15. UHV project will process refinery products
into material for petrochemical factory, adding value by US$2-4/barrel with refinery
capacity of 215,000 barrel/day, as well as increasing propylene production capacity
from 320,000 ton/year to 732,000 ton/year. Moreover, the project will reduce a
proportion of fuel oil refinery product from 20-30% at present to 8% and increase
production of products with higher value. After UHV project completes, IRPC plans
to top up profit from products from Phoenix project, aiming to make IRPC a
complete fully integrated petrochemical company (the plan is currently under a
feasibility study). The project has the total value of B65bn. However, with financial
limit to maintain the liquidity, IRPC is likely to invest on expansion projects mostly
by partnering with PTT for joint benefit. In terms of IRPC's financial position, it is
currently investing; total investment budget on Phoenix project and other onprogress
projects in 2013-2016 (excluding expansion projects currently under
study) would be B44bn, with preliminarily B10-12bn/year average operating cash
inflow estimated in 2014-2015, rising to B15bn in 2016. Debt-to-equity ratio would
be as low as 0.48x, so IRPC would be able to raise fund by borrowing and issuing
bonds without pressing its financial position in next three years.
- Profit to rebound high in 2014 from increasing sales volume and margin
Preliminarily, FY2013 profit is likely to be below expectation. Earnings in 4Q13 are
projected to rebound from normalized loss to breakeven, as GRM is projected to
rise due to seasonal effect (winter). 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. Moreover, in 4Q13, IRPC is expected to
recognize profit from hedging, as it has made hedging for 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 FY2013 earnings is
projected to revive to net profit, and FY2014 net profit is projected to rebound by
236%yoy, as petrochemical product spread would improve along with the economy
and petrochemical production capacity that would increase along with production
capacity of EBSM (ethylbenzene styrene monomer plant), which increased by 30%
to 260,000 ton/year.
- Turnaround stock in refinery sector. Net profit starts stabilizing.
We derive end-2014 fair value (DCF) at B4.16, implying 20.2% upside. As net
profit growth starts stabilizing, we recommend “BUY”