IRPC

Q4 2012 profit projected to drop significantly

IRPC Plc

Q4 2012net profit expected at B285m, thanks to extraordinary revenue

IRPC's 4Q12 operating result is still projected to be B285 of net profit, decreasing by

86.7% QoQ due mainly to norm loss although the market GIM (gross integrated

margin) in 4Q12 is projected to increase by 23% QoQ to US$8/bbl due to benefits

from prices of petroleum and petrochemical products that had risen notably in

September-October 2012 before weakening in the late of quarter (normally, product

selling of IRPC has a forward contract which has the lag-time of price around 1

month), including the stock loss of US$1.5/bbl and profit from hedging of around

B0.5/bbl, the net GIM would stand at US$7/bbl compared with US$9.8/bbl of the

prior quarter. If this is offset by the operating expenses, depreciation cost and cost

of interest expenses, there would be US$2.5/bbl of loss. However, the operating

result in 4Q12 is projected to flip back to net profit due the following positive factors.

1) There's profit from land sales (200 rais) that is recognized by B500m

approximately. 2) There's reversal of depreciation provision of land because the

current estimated price of land has increased by B400m. 3) The FX gain is

recognized by B80m. 4) The profit from an increase of TOP's share price (IRPC

currently holds 17.45 million shares) is recognized by B40m. Overall, the company's

2012 operating result is projected to face B690m of net loss compared with B4.1bn

of net profit in 2011, worse than our forecast for net profit of B1.3bn.

Q1 2013 norm earnings projected to flip to profit

IRPC's norm earnings in 1Q13 are projected to flip back to profit due to the refinery

and petrochemical businesses. Gross refining margin tends to improve from 4Q12

due to seasonal benefits. For the spread of petrochemical products (especially olefins

products), it is projected to increase gradually. In terms of the overall look of 2013,

the company's operating result is projected to rebound to profit due to our positive

prospect toward the petrochemical industry that is likely to recover continuously

which is in line with the economic recovery from the record low. Accordingly, the

demand for petrochemical products would increase gradually, especially main

products PP (polypropylene) that are used for production to export to Europe and

the US. However, the increase of prices and spread would only be gradual, so we

might revise down our spread forecast of downstream products (PP, SM, and ABS)

since they might be overestimated for the current 2013 forecast. The revision will be

made after an announcement of 2012 operating result. Apart from the product

spread that is on uptrend, the sales volume has also increased which is a positive

factor for the growth of profit in 2013. In 4Q12, the company would begin to

recognize income and profit for full year from the PRP extension project (propylene)

with production capacity of 100,000 tons/year and the lube base oil extension

project with TDAE production capacity of 28,000 tons/year and 150-BS production

capacity of 38,000 tons/year which have completed construction since early 4Q12.

In addition, IRPC would also recognize profit from land sales of 200 rais/year

according to 5-year plan of land sales.

Recommend "BUY"… investment plans to boost significant growth in future

Currently, we're in a process of forecast revisal. The fair value, using DCF, at end-

2013 stands at B5.66/share. We reiterate our recommendation of "BUY" due to the

company's potential growth in a long term, thanks to a lot more investment plans of

asset development. Furthermore, the petroleum and petrochemical businesses would

still have supports in 1-3 months ahead. In terms of 2013 PER, it has decreased to

10.3x, lower than the sector's average at 12-13x.