IRPC

IRPC Plc 

- New project to boost profit base from October on   

 

We have a positive outlook on IRPC. According to the analyst meeting yesterday, the UHV project will start its commercial run on October 1, 2015, increasing propylene production by 320,000 tons/year and raising refinery utilization rate from 80-85% to almost 100% (200,000 barrels/day). Thus, average GIM (gross integrated margin) would rise from US$8-10/barrel in 2013-2014 to US$12-14/barrel. In addition, the global oil price has plunged from 2014 by 40%, lowering IRPC's crude premium and fuel loss. 

 

- Revise up FY2015-2016 earnings forecast. Profit to double in next two years    

 

We revise up IRPC's earnings forecast from B2.85bn to B8.04bn in 2015 and from B5.75bn to B8.97bn in 2016 to reflect the following contributions: 1) GIM is revised up by US$1/barrel to US$11/barrel in 2015 and US$13/barrel in 2016; and 2) IRPC is expected to recognize B3.19bn extraordinary profit from a reversal of bad debt provision since a debtor asked to repay the debt with land (reported to the SET on February 16, 2015); this item has been included in our FY2015 earnings forecast. Under the new forecast, IRPC's normalized profit would skyrocket over twofold in the next two years and its profit base would rise to above B8bn/year since 2016 onward after the UHV project is complete in 4Q15. 

 

- New fair value is B5.2bn. Upgrade to BUY    

 

Under the new forecast and long-term growth rate up revision from 0% to 1% (in line with our projection that IRPC’s refinery business would rebound as strong as peers), new FY2015 fair value is B5.20, implying 23.2% upside. We upgrade our recommendation from HOLD to BUY. 

- New project to boost profit base from October on   

 

According to the analyst meeting yesterday, Phoenix project (the UHV project: upstream project for hygiene and value added products) will start its commercial run on October 1, 2015. The UHV project will reduce the proportion of fuel oil production from 23% at present to 8%, increase higher-value propylene production by 320,000 tons/year, and raise refinery utilization rate from 80-85% (175,000-180,000 barrels/day) to almost 100% (200,000 barrels/day); this project will minimize production of negative-spread fuel oil. 

 

After the UHV project is complete, average GIM (gross integrated margin) would rise from US$8-10/barrel in 2013-2014 to US$12-14/barrel.  

 

The global oil price has plunged from 2014 by 40%, lowering IRPC's crude premium and fuel loss (normally 3-4% of crude oil price). In addition, Delta project would reduce production cost by US$1/barrel, boosting IRPC's business efficiency; this benefit will be fully booked from 2015 on. 

 

- Revise up FY2015-2016 earnings forecast. Profit to double in next two years   

 

We revise up IRPC's earnings forecast from B2.85bn to B8.04bn in 2015 and from B5.75bn to B8.97bn in 2016 to reflect the following contributions: 

 

1) GIM is revised up by US$1/barrel to US$11/barrel in 2015 and US$13/barrel in 2016. Under the crude oil projection of US$50-60/barrel, crude premium and fuel loss are expected to decrease (projected at US$1/barrel). In addition, Delta project would reduce production cost more from US$0.5/barrel to US$1/barrel, boosting GIM further. 

 

2) IRPC is expected to recognize B3.19bn extraordinary profit from a reversal of bad debt provision since a debtor asked to repay the debt with land (reported to the SET on February 16, 2015); this item has been included in our FY2015 earnings forecast. Under the new forecast, IRPC's normalized profit would skyrocket over twofold in the next two years and its profit base would rise to above B8bn/year since 2016 onward after the UHV project is complete in 4Q15. However, for 2015, there would be non-recurring items not included in our forecast yet, e.g. remaining insurance claim of B1.7bn, profit from land sales, and stock gain.