The Nation






- 1Q14 profit to make year’s lowest

We project 1Q14 net profit at B248m, falling 68.4%qoq but leaping 62%yoy;

extraordinary profit from land sales and IRPC Clean Power (B1.1bn)

recognized in 4Q13 is not likely to be booked in 1Q14. Excluding extraordinary

items, 1Q14 normalized profit is projected to drop by 58.8%qoq to B159m as

a result of the following pressing factors: 1) 1Q14 stock loss is projected at

US$0.4/barrel, reversing from US$0.14/barrel stock gain in 4Q13. 2) Profit

from oil hedging is expected to drop from US$2.33/barrel to US$1/barrel.

1Q14 market GIM is anticipated to rise by 23.6%qoq to US$8/barrel, higher

than the average of US$6.96/barrel in 2013; GRM has increased by 533%qoq

to US$1.9/barrel, and profit from power plant business has risen by 30%qoq

to US$1.3/barrel. However, profit from petrochemical business is expected to

drop 10%qoq to US$3.6/barrel. Styrenix spread (10% of IRPC’s sales volume)

has weakened slightly after an unplanned shutdown of a factory in 4Q13 (still

higher than the statistical average), and Mx spread (5% of sales volume) has

dropped. Thus, 1Q14 accounting GIM is expected to fall 3.8%qoq to

US$8.6/barrel (higher than IRPC’s overall cost of US$8.5/barrel). Still, thanks

to THB appreciation, IRPC is likely to book B112m Fx gain in 1Q14. Overall,

1Q14 net profit is expected to make up 7.1% of FY2014 earnings forecast.

- To grow from now on

We maintain FY2014-2015 earnings forecast. Though 1Q14 net profit is

expected to make up only 7.1% of the forecast, 2Q14-4Q14 net profit is likely

to make a strong turnaround. 2Q14 olefins spreads are expected to widen

thanks to increasing demand and low supply, and aromatics spreads are likely

to be stable after passing the lowest in 1Q14. For refinery business, GRM is

expected to stay close to 1Q14 owing to U.S. driving season. In 2H14,

petrochemical spreads are expected to rebound rapidly, especially olefins

business with increasing demand in high season (winter). Moreover, IRPC’s

GRM is projected to rise by US$1-1.5/barrel in 2H14; benefit from Delta

project would be fully booked.

- Turnaround olefin stock

We derive FY2014 fair value (DCF) at B4.20. We recommend buying. IRPC has

a strong turnaround. Its EPS is likely to grow rapidly, and its P/E ratio would

drop significantly after completing Phoenix project; 21.1x in 2014 and 13.6x

in 2015.

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