IRPC

IRPC Plc

We revise down 2014 earnings forecast and fair value by 25% and
3.1%, respectively, to reflect an impact from the fire accident in the
worst case scenario. As the share price already weakened to absorb
the negative factor yesterday, it is a good entry point now.

- Three-month halt for fired unit
According to IRPC, the company will close the fired vacuum gas oil
hydrotreater (VGOHT) for three months. The company might also need to
stop the production at the adjacent deep catalytic cracking unit (DDC) in the
first 20 days for investigation and change its production plan before
resuming 60% production of the DCC in the latter two months; despite a
lack of 50% raw material from VGOHT, it still has other 50% from the
refinery and plans to buy 10% from external source.
- Cut 2014 earnings forecast by 25%
We revise down our earnings forecast for 2014 in order to reflect the worst
case scenario that the damaged VGOHT has to halt its production for three
months and the DCC has to stop producing for 20 days before resuming
60% capacity for two months and ten days. With the property damage
expense estimated at B150m (equivalent to the deducible), 2014 EPS will
decrease 24.7% from the previous forecast (which would depress profit in
2Q14 and 3Q14 before returning to a normal situation in 4Q14), under an
assumption that an insurance claim of B200m for the third month of
business interruption and an insurance claim for the excess property
damage expense apart from the B150m deducible are booked in 2015.
- Share price already absorbs bad news
Under the new forecast, 2014 fair value is B4.07, down 3.1% from B4.20. A
3% decline in the share price yesterday was probably a reflection of the
negative news. We, therefore, recommend gradually accumulating IRPC for
its potential long-term growth from the existing investment plan.