IRPC

IRPC Plc

 

Investment thesis

Results as expected

IRPC announced a stronger profit of Bt4,236m for 2Q15, up 11% QoQ and far improved from the slim profit of Bt178m reported for 2Q14. The result was in line with our estimate and the street’s projections. Stripping out an extra gain, core earnings were Bt2,045m, climbing 10% QoQ and a reversal from the loss marked in 2Q14 (also as expected).  

Result highlights 

The positive highlights of 2Q15 were quite broad-based, both in operational improvement and recognition of exceptional gains totaling Bt2,654m (greater than the Bt1,977m posted for 1Q15), particularly from stock gain and insurance claims against fire damage at one of its units last year. Operationally, the stronger petchem margin outweighed the effect of the lower refining margin this quarter—by which it jumped to US$7.2/bbl, up almost US$3 QoQ against the US$1.4/bbl decline in refining margin over the same period. As such, IRPC recorded quite impressive market GIM of US$14/bbl, up from US$13/bbl in the prior quarter. Continued strong refining and petchem margins also raised the plants’ utilization rates—the firm’s refining run rate saw at a record high of 89% versus 1Q15’s 84%.      

Outlook

While the firm is likely to book the remaining insurance claim of Bt900m in 3Q15, we remain our bearish view on its outlook. The key variable is the oil price—by which NPAT will likely turn into red, if the oil price falls below US$53/bbl. Regardless of that, the operational number would have also weakened. Although the recent oil price dip will lower fuel & loss on crude processing, our simulation model sees its market GIM entails further downside from 2Q15. Based on QTD petroleum product crack spreads, we calculate that the margin had already fallen back to below US$12/bbl. With off-season maintenance shutdowns and new capacity, we still expect market GIM of US$11/bbl for 3Q15 as a more realistic scenario. Having said that, core profit will fall notably to Bt878m accordingly.   

What’s changed? 

The bottom-line number for 1H15 accounted for 80% of our full-year estimate. Even so, we maintain our FY15 profit forecast of Bt10,069m unchanged presently. Risk to our projection is skewed downward, particularly if the oil price falls short of our estimate of US$57/bbl for 2H15. Every US$5/bbl cut in oil price will slash our FY15 NPAT estimate by 13%. 

Recommendation

We stand by our SELL call on IRPC. YTD outperformance has already priced in the impressive 1H15 earnings—by which 2H15 will in turn flip into weakness. The UHV project has yet to come into play, given that the plant’s start-up is by late 4Q15 and even so, the Propylene market outlook remains on the verge.