IRPC

IRPC Plc

- 1Q14 profit to make year's lowest
We project 1Q14 net profit at B248m, falling 68.4%qoq but leaping 62%yoy;
extraordinary profit from land sales and IRPC Clean Power (B1.1bn)
recognized in 4Q13 is not likely to be booked in 1Q14. Excluding extraordinary
items, 1Q14 normalized profit is projected to drop by 58.8%qoq to B159m as
a result of the following pressing factors: 1) 1Q14 stock loss is projected at
US$0.4/barrel, reversing from US$0.14/barrel stock gain in 4Q13. 2) Profit
from oil hedging is expected to drop from US$2.33/barrel to US$1/barrel.
1Q14 market GIM is anticipated to rise by 23.6%qoq to US$8/barrel, higher
than the average of US$6.96/barrel in 2013; GRM has increased by 533%qoq
to US$1.9/barrel, and profit from power plant business has risen by 30%qoq
to US$1.3/barrel. However, profit from petrochemical business is expected to
drop 10%qoq to US$3.6/barrel. Styrenix spread (10% of IRPC's sales volume)
has weakened slightly after an unplanned shutdown of a factory in 4Q13 (still
higher than the statistical average), and Mx spread (5% of sales volume) has
dropped. Thus, 1Q14 accounting GIM is expected to fall 3.8%qoq to
US$8.6/barrel (higher than IRPC's overall cost of US$8.5/barrel). Still, thanks
to THB appreciation, IRPC is likely to book B112m Fx gain in 1Q14. Overall,
1Q14 net profit is expected to make up 7.1% of FY2014 earnings forecast.
- To grow from now on
We maintain FY2014-2015 earnings forecast. Though 1Q14 net profit is
expected to make up only 7.1% of the forecast, 2Q14-4Q14 net profit is likely
to make a strong turnaround. 2Q14 olefins spreads are expected to widen
thanks to increasing demand and low supply, and aromatics spreads are likely
to be stable after passing the lowest in 1Q14. For refinery business, GRM is
expected to stay close to 1Q14 owing to U.S. driving season. In 2H14,
petrochemical spreads are expected to rebound rapidly, especially olefins
business with increasing demand in high season (winter). Moreover, IRPC's
GRM is projected to rise by US$1-1.5/barrel in 2H14; benefit from Delta
project would be fully booked.
- Turnaround olefin stock
We derive FY2014 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; 21.1x in 2014 and 13.6x
in 2015.