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IRPC

IRPC

IRPC Plc

Golden year of olefins

Olefins price and spread have been recovering strongly since the

beginning of the year, benefiting IRPC (olefins 35%, styrenix 15%,

aromatics 10%, and refinery 35%). In 1Q14, spreads of HDPE and LDPE

(commodity grade plastic) have increased by 11.4%qoq and 6.1%qoq to

US$606/ton and US$709/ton, respectively. Spreads of PP, PS and ABS

(specialty grade plastic) have risen by 5.8%qoq, 2.7%qoq and 5.1%qoq

to US$571/ton, US$844/ton and US$945/ton, respectively. Demand for

olefins has been growing significantly (averagely 5 million ton/year),

while olefin reserves and new supply (460,000 ton in 2014 and 450,000

in 2015; lower than 1.1 million ton new supply in 2013) are very low;

more olefins products need to be produced. Aromatics business makes

up only 10% of IRPC’s capacity, mainly Bz. 1Q14 Bz-Naphtha spread has

increased by 19.9%qoq to US$383/ton. As IRPC has not produced Px

(Px spread has reached the three-year lowest), IRPC does not get

affected by the low spread.

- 1Q14 profit to rebound aggressively, boosted further by Phoenix project

We maintain FY2014-2015 earnings forecast. IRPC’s 1Q14 normalized

profit is projected to rebound from 4Q13, thanks to high season for

refinery business and the positive factor for olefins business. FY2014

normalized profit is expected to skyrocket by 322%yoy, owing to the

expansion of EBSM plant capacity (from 200,000 tons/year to 260,000

tons/year) and increasing spreads. Extraordinary profit from land sales

is also likely to be booked (not included from our earnings forecast).

After completing Phoenix project in 2016, GIM (gross integrated margin)

is expected to double to US$12/barrel. UHV project will reduce a

proportion of fuel oil production from 23% at present to 8% and

increase high-value production, doubling propylene production from

320,000 tons/year to 640,000 tons/year. Delta project aims to improve

the business efficiency e.g. increasing proportion of domestic crude oil

use from 6% or 10,000 barrel/day in 2013 to 25% or around 35,000

barrel/day in 2014, reducing production cost by US$0.5-1/barrel. For a

merger with PTTGC, IRPC would consider this after completing Phoenix

project so that it can assess the actual value of IRPC.

- Olefins turnaround stock

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

as IRPC is having a strong turnaround. FY2014 EPS is projected to leap

rapidly, and its P/E ratio has dropped to 18.6x.


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