IRPC

IRPC Plc
- Proceed to complete Phoenix project to reflect real value
The current important strategy of IRPC is to complete the Phoenix project
by 2016 in order to increase gross integrated margin (GIM) to US$12/barrel
from average of US$6/barrel at present. A major project that will generate
growth for IRPC is UHV, which will reduce proportion of fuel oil product from
23% to 8% and add value with petrochemical product, increasing propylene
production capacity by 320,000 tons to 640,000 tons a year. In addition,
the company will proceed with Delta project, which aims to improve the
business efficiency e.g. increasing proportion of domestic crude oil use from
6% or 10,000 barrel a day in 2013 to 25% or around 35,000 barrels a day
in 2014, which would reduce the production cost by US$0.5-1/barrel. For
the investment budget, the company has planned to seek long- and shortterm
bank loans for its ongoing projects, particular 2014 in which B26bn
investment is needed. As its current debt to equity ratio is only 0.5x, the
company can make additional loan without affecting the financial status. For
a merger with PTTGC, IRPC would consider this after completing Phoenix
project so that it can assess the actual value of IRPC.
- Profit to rebound in 1Q14
We project the normalized profit in 1Q14 to rebound from 4Q13, thanks to
a high season of refinery business and wider olefins spread as a reflection
of increasing demands. For an outlook for FY2014, the profit is projected to
skyrocket 322%yoy, owing to rising petrochemical production as a result of
an expansion of EBSM plant capacity from 200,000 to 260,000 tons a year
and petrochemical spread that would increase along with the world
economic recovery. Olefins supply in 2014 and 2015 would grow only
460,000 tons and 450,000 tons, less than the average demand growth of 5-
6 million tons, so it would be advantageous for olefins price and spread in
the next couple years. Moreover, there is a great chance that the company
will book a profit from selling of its remaining 2,000 rai of land in Ban Kai
Industrial Estate; preliminarily estimated, 100-200 rai will be sold in 2014,
which we have still not included in our forecast.
- Buy. Dividend yield is 3%
2014 fair value (DCF) is B4.20. We recommend buying IRPC. Although the
current P/E ratio is already higher than the sector’s average, there is still
upside from land selling that we have still not included in our forecast. IRPC
also provides 3% dividend yield or B0.10 dividend for FY2013 (XD date is 3
March 20140)