IRPC

IRPC Plc

GIM to double after Phoenix complete
IRPC management team expects that IRPC would grow prosperously in
the next few years after completing Phoenix project (scheduled in
2016), in line with our projection. UHV project will reduce the proportion
of fuel oil production from 23% to 8%, increase high-value production
(raising propylene production to 730,000 tons/year), and boost refinery
utilization rate from 80-85% to 100% (215,000 barrel/day); minimizing
low-spread fuel oil production. After completing Phoenix project, GIM
(gross integrated margin) is expected to leap from the average of
US$7/barrel in 2013 to US$12-14/barrel. Also, Delta project will 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$1/barrel.

- 1Q14 earnings to reverse to normalized profit
We project IRPC's 1Q14 normalized profit to rebound after facing loss in
4Q13. Average GRM (Singapore) is expected to leap by 46.4%qoq to
US$6.25/barrel thanks to seasonal effect. Olefins spread has widened
averagely by 6%qoq (YTD), reflecting growing demand. 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, especially olefins (olefins 35%,
styrenix 15%, aromatics 10%, and refinery 35%). Demand for olefins
has been growing significantly (averagely 5 million ton/year), while
olefin new supply (460,000 ton in 2014 and 450,000 in 2015) increases
slowly; thus having a positive sentiment on olefins price and spread in
next few years. For aromatics business, IRPC mainly focuses on Bz.
1Q14 Bz-Naphtha spread has increased by 19.9%qoq to US$383/ton. As
IRPC has not produced low-spread Px, IRPC does not get affected by the
low spread.

- A must-have turnaround stock
We derive end-2014 fair value (DCF) at B4.20. We recommend buying.
IRPC has a strong turnaround. Its EPS is likely to grow rapidly, and its
P/E ratio would drop significantly after completing Phoenix project;
19.9x in 2014 and 12.8x in 2015.