IRPC

IRPC Plc 

Consensus-beating results

IRPC announced a QoQ weaker profit of Bt887m for 3Q15 versus reported Bt4,236m a prior quarter. The results was however much better than 3Q14’s Bt22m and also beat up our expectation and the consensus estimate by 11-15%. Unlike other Thai refiners (which are likely to post big losses), IRPC’s solid operational performance and exceptional gains outweighed the effect of stock loss this quarter. Stripping out extra gains/losses, core number arrived Bt2,159m, up 6% QoQ and a huge turnaround from core loss of Bt1,250m posted for 3Q14.

Result highlights 

The positive highlights of 3Q15 were both operational improvement and recognition of exceptional gains totaling Bt923m, particularly from FX gains and remaining insurance claims against fire damage at one of its units last year. These twin factors have outweighed the effect of stock losses of Bt2.2bn as a result of oil price dip during the quarter. Operationally, the stronger petchem margin strengthened overall market GIM further to US$14.13/bbl from 2Q15’s US$14/bbl, although seasonal soft-patch in GRM weakened its effective refining margin to US$4.78/bbl from US$6/bbl a quarter earlier. The plants’ utilization rates ended quite mixed—refining utilization has normalized to 82% from a record 89% seen in 3Q15 due to weaker refining margin environment. Meanwhile, petchem utilizations remained quite strong—Aromatics plant ran almost a capacity full-run of 97% versus 2Q15’s 83%; and Olefins plant was on par with 2Q15’s 90%.   

Outlook

We anticipate a strong bottom-line bounce in 4Q15, as heavy stock loss won’t recur. But our model conservatively assumed a QoQ weaker operational performance—we anticipate Bt1.5bn for 4Q15. With softening olefin margin, we assumed market GIM of US$12.5/bbl. Yet, there will be scopes for margin upside—Arab light premium in Nov retreated to US$-1.6/bbl from US$0.1/bbl in Oct. That would be a boon to its GIM, given that Arab light accounts ~70% of total crude intake. Besides, olefin margin would have recovered ahead of Chinese New Year season.      

What’s changed? 

We maintain our FY15 profit forecast of Bt10,411m unchanged presently. Risk to our projection is skewed upside, particularly from lower-than-expected crude premium and stronger-than-expected Olefins margin through the rest of 2015.  

Recommendation

IRPC remains our two preferred picks within Thai energy space. Its soon-to-begin upstream project for hygiene and value added product (UHV) would sustain strong core integrated margin well into 2016. Continued oil price weakness will benefit downstream refining, but IRPC the most. A spectacular upturn in the Asphalt price would also be its unlocked value—which would be a top-up on its margin rather than a distortion as has been experienced historically.