IRPC

IRPC unveiled a just-above break-even profit of Bt22m for 3Q14 versus earnings of Bt178m in 2Q14 and Bt1,047m in 3Q13. But the number was better than our estimate and the street projection (a loss ranging Bt300-600m), due largely to heavier extra gains than modeled. Core number was a loss of Bt1,250m, shallower than 2Q14's loss of Bt1,948m.       

Result highlights 

The highlights of 3Q14 were recognition of hefty gains totaling Bt2bn, mainly insurance payouts and the reversal of doubtful debts versus gains of Bt1.2bn in 2Q14. IRPC also booked a reversal of deferred income tax of Bt1.1bn, resulting from exercising the benefits of debt write-offs against the former owner’s debts outstanding of Bt8bn (the firm had set a full provision). 

The operation improved moderately QoQ. Reported market GIM edged up to US$6.7/bbl from $5.4 the previous quarter (but still far below its break-even cost of US$8.8/bbl), which outweighed the effect of reduced refinery utilization to 76% from 2Q14's 80%, due to a full quarter shutdown of the fired-damaged VGOHT unit. The oil price fall caused a stock loss and LCM realization of Bt1,848m (net of hedging gains) versus a reported stock gain of Bt968m in 2Q14. Accounting GIM dived to $3/bbl from $9.2/bbl in 2Q14. 

Outlook

We are subdued over IRPC’s bottom-line outlook for 4Q14, as we don’t expect the aforesaid extra gains totaling Bt3.1bn to recur—the reversal of doubtful debts and deferred income tax constitute one-off gains. IRPC guides for receipt of insurance payouts totaling Bt600m for the quarter, lower than the Bt710m posted for 3Q14. Given the strong likelihood of a further stock loss (based on our base-case Brent price of US$85/bbl through to year-end), we expect the bottom-line to post a loss of Bt599m.

What’s changed? 

We maintain our FY14 break-even NPAT forecast unchanged. With oil prices down and the absence of substantial extra gains in 4Q14, we believe the street forecast for 4Q14 of break-even is still too optimistic, so we expect a further consensus bottom-line projection downgrade.  

Recommendation

While IRPC’s current price trades slightly below its book value (~0.95x), we don’t think the risk-reward proposition has improved—the firm’s bottom-line profile is deeply sub-par and biased in favor of downside. The UHV project may start operating in 3Q15, but given the prevailing petchem and GRM down-cycle, we would counsel standing aside until the UHV project is actually running.