IRPC

IRPC Plc

2Q14 net profit is estimated at B220m despite many pressing
factors. Normalized profit is also projected to stabilize in 2H14. In a
long-term outlook, the profit will strengthen significantly after
Phoenix project starts running.

- Net profit expected in 2Q14 from stock gain and hedging gain
We estimate 2Q14 net profit at B220m, decreasing 36.1%qoq, due to the
following contributions: 1) stock gain of US$1.8/barrel or around B900m
and 2) hedging gain of as much as US$1.9/barrel or B920m. On the other
hand, negative factors in this quarter are 1) market GRM dropping
45.2%qoq, 2) profit from petrochemical business decreasing 26.5%qoq to
US$2.5/barrel, and 3) operating cost projected to increase 4.3%qoq.
Overall, 1H14 net profit is estimated at B603m or 23% of FY2014 forecast.
- FY2014 forecast cut likely
We might slash our FY2014profit forecast to reflect 1H14 profit that might
turn out substantially below our projection, awaiting only solid information
about extraordinary items in 2H14 e.g. property damage provision for
IRPC’s fire accident and non-recurring profit from its land sales, before
starting the revision. For the earnings in 2Q14, profit from the core
business, refinery and petrochemical, might stay flat from the previous
quarter; the profit in 2H14 depends mainly on Delta Program, which is
projected to start generating at least B1bn in benefit, hedging gain, and
other businesses of the company that can generate regular profit.
- Worth investing in long term. Buy
We derive 2014 fair value at B4.07 and reiterate BUY. The share price
decline has possibly partially absorbed the bad news, while in the long run
IRPC still has potential to grow strongly from its investment plan.