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IRPC

4Q13 profit to drop qoq. To rebound in 2014 from petrochemical business BUY

IRPC Plc

- To benefit from land sale. 4Q13 net profit to drop 32%qoq to B711m,

We project 4Q13 net profit at B711m, dropping 32.1%qoq due to the

following factors: 1) Profit from stock gain and oil hedging is projected

to decrease by 40.9%qoq, from US$4.4/barrel to US$2.6/barrel. 2) Fx

loss is expected to increase by four folds qoq to B603m, as THB has

weakened by 4.7%qoq. 3) Operational expenditure (OPEX) and

depreciation are projected to increase by 9.0%qoq and 4.0%qoq to

US$6/barrel and US$2.6/barrel, respectively, as personnel expense is

usually high late in a year and extended EBSM would start producing for

a full quarter. However, IRPC’s profit would benefit from the following

factors:

1) Petrochemical spreads are likely to rise by 21.2%qoq to

US$4.0/barrel, while 4Q13 GRM and profit from power business are

projected to stay unchanged at US$1.4/barrel and US$1/barrel, respect.

Thus, 4Q13 market GIM is expected to rise by 8.3%qoq to

US$6.5/barrel. 2) B1.1bn extraordinary income from sale of land would

be booked. 3) B250m extraordinary income from the disposal of 51%

shareholding in IRPC Clean Power Company Limited to GPSC would be

booked. Overall, FY2013 net profit is projected at B753m, 39.3% lower

than expected (versus B759m net loss in 2012).

- 1Q14 profit to grow qoq. FY2014 net profit to prosper, thanks to petrochemical business

We project that 1Q14 normalized profit would rebound from 4Q13,

mainly from both refinery and petrochemical (olefins) businesses. For

refinery business, GRM is projected to rise due to seasonal effect.

Average GRM (Singapore) has leapt by 53.9%qoq, making FY2014

average of US$6.57/barrel (YTD). Also, worldwide refineries would have

a maintenance shutdown in late-1Q14, so supply would significantly

decrease. Overall olefins spread (YTD) has increased by the average of

5%, reflecting growing demand. FY2014 net profit is projected to

skyrocket by 181%yoy, thanks to an increase in production capacity of

petrochemical products, as EBSM production capacity has increased from

200,000 tons/year to 260,000 tons/year. Moreover, petrochemical

spread is likely to grow along with global economic recovery. In terms of

demand and supply, 2014-2015 supply for olefins products would rise by

only 460,000 tons and 450,000 tons, respectively, less than growth in

average demand of 5-6 million tons/year. This would benefit

petrochemical products’ price and spread in the next couple years.

- "BUY". 34.6% upside

We derive end-2014 fair value (DCF) at B4.20. We recommend "BUY".

Though IRPC’s PER is higher than the sector’s average, its upside comes

from the sales of land, which we have not included in our forecast.


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