IRPC

IRPC Plc (IRPC)

Net profit of B613m projected in 1Q13, but norm profit might only break even
We project 1Q13’s earnings with a net profit of B613m, mainly from an
extraordinary item – massive FX gain of B537m from 4.25% appreciation of the Baht
since end-4Q12. However, norm profit is estimated at only B61m. Market GIM in
1Q13 has risen to US$7.4/bbl from US$6.7/bbl in the prior quarter following GRM
that increased to US$2.22/bbl and petrochemical spread that widened to US$3.7/bbl
(HDPE spread shifted 15.5%qoq to US$520/ton; PP spread shifted 11.5%qoq to
US$580/ton; PS spread shifted 23.3%qoq to US$950/ton). However, with falling
crude oil price in March 2013, IRPC had to face a stock loss of around US$0.30/bbl.
Accordingly, net GIM in 1Q13 is anticipated at US$7.1/bbl, which will be entirely
offset by selling and administrative expense, depreciation, and cost of interest
expense in 1Q13, so norm profit would only break even. Overall, 1Q13’s earnings of
IRPC would comprise 10.2% of our previous forecast.
- Slash 2013-2014’s forecast to reflect worse outlook toward industry
We revise down our profit forecast for 2013-2014 to reflect price and spread of
petrochemical products as well as GRM that are projected to be lower than
previously estimated, as detailed in the table. The global economy has still not
shown a solid sign of recovery, especially that of China, the world’s major
petrochemical consumer, so demands for petrochemical products, which were
previously anticipated to rebound significantly since 1H13, would only stabilize from
end-2011, reflecting from current petrochemical price and spread. However, we
believe petrochemical price and spread in 2013 would still grow from 2012. The
economic situation that is foreseen to improve in 2H13 is a key factor to boost the
demands, which will be in line with IRPC’s investment, according to Phoenix project,
to increase production capacity of ABS extension by 60,000 tons a year, which will
be complete in 3Q13 (the company will shut down EBSM, a feedstock of ABS, for tie
in for 2 months during June – July 2013). Accordingly, significant growth is
anticipated again in 2H13 and 2014 from increasing price, spread, and sale volume.
Consequently, we estimate a net profit of B3bn in 2013, comparing to a net loss of
B959m in 2012, and the profit growth of 86%yoy in 2014.
- Cut 2013’s fair value to B4.70. Reiterate “BUY”
Under the new forecast, 2013’s fair value (DCF) is B4.70/share (from B5.66/share).
We reiterate our BUY recommendation, on grounds of long-term growth potential of
IRPC from its abundant asset development investment plans. However, we believe
the share price has already reflected negative factors from the vague recovery of the
industry. As long as prices of petrochemical and petroleum products do not show
continuous hike, it will continue to place pressure on the share price in the short
term. Consequently, we recommend buying when the price weakens. For an
amalgamation between IRPC and PTTGC, the management said that the merger will
not occur in the near future and the 2 companies are now only studying for joint
venture in some projects to maximize mutual benefits.