IRPC

IRPC Plc
 

Slightly below estimate: IRPC reported a deeper loss of Bt2,178m for 4Q11 versus a loss of Bt183m the previous quarter and a Bt2,251m profit in 4Q10. The number undershot the expectations of ourselves and the consensus—we had estimated a loss in the Bt300-400m range. IRPC’s operating performance proved weaker than modeled and it reported an unexpected stock loss and a loss on oil hedging contracts. The firm announced a 2H11 DPS of Bt0.04, making for a full-year DPS of Bt0.12, implying a payout of 60%, the same as for last year.   
Results highlights: The weak performance was caused by a major turnaround at the plant, lower refining and chemical margins and exceptional expenses totaling Bt1,578m (a stock loss, a loss on oil hedging contracts and disposals of fixed assets for the turnaround). The core operational loss was Bt1,195m (in 3Q11, IRPC posted its best core earnings of the year of Bt2,034m). Because of the 49-day turnaround, refining utilization fell back to 56% from 82% in 3Q11, while chemical plant run rates were in the range of 50-55%, down markedly from 90-94% the previous quarter. Moreover, IRPC’s marketing gross integrated margin (GIM) nose-dived to US$5/bbl, about half of 3Q11’s $10.3/bbl.
Outlook: We anticipate that both the bottom-line and the core number will bounce strongly in 1Q12. The plant resumed a full capacity run after the shutdown during 4Q11. Stronger refining and chemical margins should boost GIM—assuming sustained refining and chemical margins through the quarter, we anticipate that 1Q12 GIM will double QoQ. Additionally, current oil prices suggest that IRPC will post a mild stock gain, given its YE11 inventory cost of US$109/bbl. As such, our modeling indicates a net profit of Bt1.9bn for 1Q12. 
What’s changed? Based on MS’s revised oil price forecast, we have raised our FY12 profit projection by 7% to Bt7,514m—we previously anticipated a stock loss (a scenario that now appears unlikely). Our upward revision suggests impressive bottom-line growth of 82% YoY, led by a full capacity run with no plant shutdown and forecast stronger GIM, fueled by a full operational year for its new power stations and the start-ups of the Propylene Booster and the Lube Group 1 Specialty Products facilities, by mid-2012. The firm projects EBITDA accretions of US$80-100m/year.
Recommendation: Despite 4Q11 disappointment, we fundamentally like IRPC. Chemical fundamentals are improving and the firm’s raft of projects is starting to pay off. A bunch of those projects will make for earnings upside and generate substantial long-term value, once they are fully implemented, we anticipate.