IRPC

IRPC Plc

Golden year of olefins

Olefins price and spread have been recovering strongly since the
beginning of the year, benefiting IRPC (olefins 35%, styrenix 15%,
aromatics 10%, and refinery 35%). In 1Q14, spreads of HDPE and LDPE
(commodity grade plastic) have increased by 11.4%qoq and 6.1%qoq to
US$606/ton and US$709/ton, respectively. Spreads of PP, PS and ABS
(specialty grade plastic) have risen by 5.8%qoq, 2.7%qoq and 5.1%qoq
to US$571/ton, US$844/ton and US$945/ton, respectively. Demand for
olefins has been growing significantly (averagely 5 million ton/year),
while olefin reserves and new supply (460,000 ton in 2014 and 450,000
in 2015; lower than 1.1 million ton new supply in 2013) are very low;
more olefins products need to be produced. Aromatics business makes
up only 10% of IRPC's capacity, mainly Bz. 1Q14 Bz-Naphtha spread has
increased by 19.9%qoq to US$383/ton. As IRPC has not produced Px
(Px spread has reached the three-year lowest), IRPC does not get
affected by the low spread.

- 1Q14 profit to rebound aggressively, boosted further by Phoenix project
We maintain FY2014-2015 earnings forecast. IRPC's 1Q14 normalized
profit is projected to rebound from 4Q13, thanks to high season for
refinery business and the positive factor for olefins business. FY2014
normalized profit is expected to skyrocket by 322%yoy, owing to the
expansion of EBSM plant capacity (from 200,000 tons/year to 260,000
tons/year) and increasing spreads. Extraordinary profit from land sales
is also likely to be booked (not included from our earnings forecast).
After completing Phoenix project in 2016, GIM (gross integrated margin)
is expected to double to US$12/barrel. UHV project will reduce a
proportion of fuel oil production from 23% at present to 8% and
increase high-value production, doubling propylene production from
320,000 tons/year to 640,000 tons/year. Delta project aims to improve
the business efficiency e.g. increasing proportion of domestic crude oil
use from 6% or 10,000 barrel/day in 2013 to 25% or around 35,000
barrel/day in 2014, reducing production cost by US$0.5-1/barrel. For a
merger with PTTGC, IRPC would consider this after completing Phoenix
project so that it can assess the actual value of IRPC.

- Olefins turnaround stock
We derive end-2014 fair value (DCF) at B4.20. We recommend buying
as IRPC is having a strong turnaround. FY2014 EPS is projected to leap
rapidly, and its P/E ratio has dropped to 18.6x.