IRPC

IRPC Plc
- Phoenix and Delta join forces
IRPC confirmed its business strategy which projected to see profit driving
factors since 2014 onward. First, 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 barrel a day in
2014, would help reduce the company’s production cost by US$1/barrel.
Additionally, the company would be able to book hedging gain and a profit
from the larger proportion of domestic finished oil sale of totaling US$1/barrel,
which would make market GIM (gross integrated margin) in 2014 increase at
least US$2/barrel from 2013 to US$9/barrel. Moreover, in the next few years,
strong growth is foreseen from Phoenix project that will be complete in 2016,
particularly UHV project that will reduce a proportion of fuel oil production
from 23% at present to 8% and increase high-value production like
petrochemical instead, resulting in a double market GIM from 2013 to US$12-
14/barrel.
- Olefins, hero for the rest of 2014
We project to see continuous growth in the rest of the year. Olefins spreads
are expected to widen gradually, thanks to recovering demand and
entrepreneurs’ low stock, while aromatics spreads likely have already
bottomed out and are going to stabilize from now on. However, petrochemical
spreads are expected to rebound significantly in 2H14, especially for olefins
because of increasing demand during the high seasons (winter and year-end
festive season) and no pressure from new supply. For the refinery business,
GRM in 2Q14 would stay close to that of 1Q14, thanks to the U.S. driving
season. Moreover, benefit from Delta project would be fully booked from now
on, thus helping to improve the GRM by US$1/barrel. Consequently, leaping
profit growth of 322%yoy is foreseen in FY2014he year, thus helping to
improve the GRM by US$1-1.5/barrel from present.
- A must-have turnaround stock
FY2014 fair value (DCF) is B4.20. We recommend buying. IRPC is a
turnaround stock with EPS projected to surge aggressively and P/E ratio
projected to drop significantly after completing Phoenix project, from 20.7x in
2014 to 13.3x in 2015.