IRPC stocks downgraded

Asia Plus Securities lowered its rating for IRPC's shares from "hold" to "avoid trading" in the short term as the company has no new projects. In addition, the refinery industry is falling into the downturn cycle and product prices in the petrochemical sector are weakening.

According to the research, the delay in IRPC's long-residue efficiency-enhancement project will have a negative impact on its future growth.

The broker also raised interest rate assumption to 6 per cent from 5 per cent annually. Along with the global interest rate hikes, it would result in slowdown in new IRPC investment.

However, some brokerages had no forecasts on IRPC shares as they were not interested in the short run. The petrochemical industry outlook is cyclically expected to take a downturn after 2009.

IRPC said the financial crisis could lead to problems in tapping funds for investment in the project. Meanwhile, the recent drop in crude oil prices could also pose a threat to the project.

A company executive clarified that the project would not be worth the investment if crude oil is below $100 per barrel.

Crude oil for September delivery fell below $120 a barrel in New York and London yesterday, little changed from the past week but sharply down from the record high of $147 last month.

However, Tisco Securities maintains its "buy" rating on IRPC shares.

The brokerage thinks that IRPC's long-residue efficiency-enhancement project has not been taken into account for its 2008-10 revenue projections. The project is part of the company's investment plan in Phase II, which will be implemented in 2011-12.

"We expect a wider gross margin from IRPC's oil refining business to be the main driver behind strong quarter-on-quarter earnings growth," stated Tisco's research.

IRPC posted Bt1.63 billion in net profit for the first quarter of this year, down 27.9 per cent on quarter, and down 41 per cent on year.

However, Tisco Securities' research projected IRPC's second-quarter net profit this year to surge by 72.6 per cent on quarter to Bt2.8 billion due mainly to wider gross refining margins following inventory gains. IRPC's market gross refining margin should remain below complex refineries given its higher fuel oil output.

"We estimate its integrated margin at $15 per barrel in the second quarter of 2008, up from $9.7 per barrel in the first quarter," said the research, adding that this was mainly due to higher stock gains of about $4 per barrel after crude oil prices jumped by more than $30 per barrel in the second quarter.

The utilisation rate for IRPC's refinery should be maintained at 84 to 85 per cent in the second quarter of this year and throughout the year due to the wider negative crack spread between fuel oil and crude oil compared with 2007.

The broker said IRPC's massive investment upgrade would make it bear a higher debt-to-equity ratio, from 0.1 currently to one.

Tisco Securities' research said the main risk to its profit call was delays to IRPC's projects and price volatility in the company's crude oil and petrochemical products. Higher than expected investment cost is another risk, especially as these could have an adverse impact on dividend payments.