IRPC

IRPC Plc

In a worst case scenario, a fire accident at IRPC’s VGO
hydrotreating unit might affect 2014 EPS forecast and fair value by
10-18% and 1.4-2.9%, respectively. The share price might decline
in the short term; if it falls below projection, BUY is recommended.

- Fire hits sulfur removing unit
Yesterday, a fire broke out at IRPC’s vacuum gas oil (VGO) hydrotreater, a
sulfur removing unit that provides feedstock to deep catalytic cracking unit
(DDC) for production of propylene and benzene of 150,000 tons year and
benzene oil of 360 million liters a year, in Rayong. Preliminarily, IRPC has
stopped production at the VGO and DCC for investigation. The company
already has an insurance of up to US$1.2bn, which covers both property
damage and business interruption, with deducible (which means the
insurance company will pay any expenses only when the property damage
and the business interruption exceed the mutually agreed level, US$5m and
60 days in this case).
- Worst case scenario, EPS forecast to decline 10-18%
In the worst case scenario that the fired VGO and the adjacent DCC have to
stop production for one and two months, respectively, for restoration and
that IRPC has to be responsible for the deducible of US$5m, 2014 EPS and
fair value will decrease by 10.5-18.4% and 1.4-2.9%, respectively, from
previously (the insurer will pay for the income if the units have to be closed
longer than two months).
- Possibly weaken share price in short term
We are reviewing 2014 earnings forecast and fair value (B4.20/share at
present) in order to reflect an impact from the fire incident. The share price
might be depressed in the short term, but if it decreases more than 1.4-
2.9% we have estimated, BUY is recommended.