IRPC

IRPC Plc

Profit in line with our model
IRPC reported a net profit of Bt778m, down 26% QoQ but up substantially YoY. The number was as we expected but was 34% higher than the consensus, due largely to gains on hedging instruments and land sales. Stripping out extra items, the core number would be a loss of Bt930m—also in line with our expectation and shallower than the core loss of Bt1,410m posted for 3Q13.     
Result highlights
The positive points of 4Q13 were recognition of huge extra gains, particularly on hedging instruments, asset revaluations and the disposal of fixed assets, which altogether totaled Bt2.6bn. On the flipside, the firm’s operation remained under pressure. IRPC posted a market GIM of US$6.47/bbl ($6/bbl in 3Q13)—below its break-even point of $8.5/bbl.
Fatter petchem margins boosted overall margin amid a poor GRM environment—the petchem business margin was US$4.08/bbl, up from $3.33/bbl in 3Q13. Also, aromatics and olefins run rates rose further to 89% and 111%, respectively, from 78% and 107% in 3Q13. This outweighed the effect of a refinery run rate decline to 81% from 83% the previous quarter.   
Outlook
As we don’t expect extra gains to recur in 1Q14, we are subdued about IRPC’s bottom-line outlook. However, we anticipate a strong bounce in the first-quarter core number. A 50% QoQ rise in the Singapore benchmark GRM should boost the firm’s market GRM. Further rises in olefins margins and greater proportionate use of cheaper indigenous crude would add further strength to operational numbers. 
What’s changed?
We maintain our FY14 NPAT forecast unchanged at Bt1,351m. Our current projection is 60% below the consensus. Management guides that IRPC’s break-even cost will rise from US$8.5/bbl in FY13 to $9/bbl in FY14, due to heavier depreciation and interest costs with the completion of earlier Phoenix initiatives and debt financing to fund the UHV project. Given poor refining fundamentals and rising costs this year, we believe the consensus earnings forecast will be downgraded. 
Recommendation
Despite improving long-term fundamentals and a below-book value share price, IRPC’s low expected FY14 ROE of 2% and miserly dividend yield of 2.5% (against peer means of 13% and 5%) will keep the stock lagging its refining-cum-petchem peers in the interim. There is also increasing downside risk to FY14 NPAT from rising costs and the possibility of slower land sales than currently assumed. Within refining-cum-petchem space, we still prefer PTTGC.