IRPC

IRPC Plc

 

- 2Q15 net profit growth meets projection 

IRPC’s net profit grew 10.5%qoq to B4.23bn in 2Q15, in line with projection. Normalized profit soared 206.8%qoq, thanks to stock gain of US$3.28/barrel or B1.9bn and a 7.3%qoq increase in market GIM to US$14.01/barrel as a result of significantly increasing petrochemical spreads, thus accounting GIM in 2Q15 rose 38.4%qoq to US$17.3/barrel. In addition, the company booked insurance claims of B460m for a fire accident at its VGOHT unit, but it was negated by Fx loss of B515m. Overall, 1H15 net profit was B8.1bn, growing 15.5x from the same period of last year and accounting for 83% of our current FY2015 forecast. 

- Deceleration likely in 2H15, but aggressive growth in 2016  

We maintain FY2015 net profit forecast, projecting a net profit of B9.7bn, versus net loss of B5.2bn in 2014. 2H15 net profit would make up only 17% of our forecast, because we have included risk of stock loss in 3Q15 and lower GRM when compared with 1H15 as a result of a low season of the refinery business. However, there will be compensation from the strong petrochemical business. The company would also recognize insurance claim of around B1bn. Moreover, in 4Q15, the company will start to benefit from the UHV project; the project will show a full-year benefit in 2016, boosting GIM at least US$2.5/barrel from present and thus pushing IRPC to a new profit base since 2016 onwards. 

- Top pick of energy sector  

We recommend buying IRPC. 2015 fair value is B5.80, implying significant upside from the current share price. ROE is projected to reach 13% for the first time in eight years, while P/E ratio is only 8.6x.