IRPC

IRPC Plc

 

Results as expected

IRPC announced a QoQ weaker profit of Bt447m for 4Q15 versus the reported Bt887m in the prior quarter. The results was however much better than the net loss of Bt5.8bn posted for 4Q14 and also in line with expectations. Stripping out exceptional losses, IRPC exhibited stronger operational performance—the core number reached Bt2.5bn, up 19% QoQ and a marked improvement of 125% for a YoY comparison. 

Result highlights 

The negative highlights of 4Q15 were recognition of exceptional losses totaling Bt2.8bn, particularly from stock loss, “lower of cost or market” accounting and loss on hedging derivatives. Besides, OPEX has also spiked to US$6.5/bbl from 3Q15’s US$5.3/bbl due largely to maintenance expenses and staff bonuses. Operationally, seasonal diesel demand strengthened an effective refining margin to US$7.1/bbl from US$4.7/bbl a quarter ago. That outweighed the effect of a seasonal soft patch in the petchem margin, which was down to US$6.6/bbl from US$8.2/bbl. 

In all, market GIM nudged up to its all-time high of US$14.7/bbl versus US$14.1/bbl a prior quarter. Additionally, the refining utilization rates ended higher at 84% from 3Q15’s 82%. Meanwhile, petchem utilizations weakened a bit due to the plant maintenance shutdowns—its Aromatics plant ran close to a capacity full-run of 95% (down slightly from 97% in 3Q15); and its Olefins plant was almost on par with 3Q15’s 90%.   

Outlook

While distillate crack spreads were disappointing month-to-date, a lower oil price will improve IRPC’s refining economics the most. There is a plus with a bounce in petchem spreads buoyed by a slow response to the recent dip in the oil price. Those twin effects have strengthened its effective GIM to ~US$15/bbl, to date. Assuming the current margin through 1Q16, we expect it to outweigh the effect of further stock loss; and thus 1Q16 NPAT would have strongly bounced to a level of ~Bt2bn.      

What’s changed? 

We maintain our FY16 profit forecast of Bt10.6bn unchanged presently. Risk to our projection is skewed to the upside on margin upside from the UHV project. Apart from Propylene, the project will also yield heavy naphtha, heavy gas oil and, to a lesser extent, ethylene. In particular, heavy naphtha is a gasoline-blending component, whose crack spread has risen markedly in tandem with the soaring gasoline crack. 

Recommendation

IRPC remains our one of two preferred refining picks. Apart from being the greatest beneficiary from the low-oil-price environment, the market will soon renew optimism on the nearly operating UHV project and this will build further share price gains, in our view. The Propylene outlook is still of concern but unlocked values from UHV by-products will build scope for margin upside. That said, the FY16 earnings consensus was too conservative (~20% below our current estimate) and thus, a flow of consensus upgrades is imminent.