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IRPC

Worst case scenario, fire accident to affect EPS forecast by 10-18% BUY

IRPC Plc

In a worst case scenario, a fire accident at IRPC's VGO

hydrotreating unit might affect 2014 EPS forecast and fair value by

10-18% and 1.4-2.9%, respectively. The share price might decline

in the short term; if it falls below projection, BUY is recommended.


- Fire hits sulfur removing unit

Yesterday, a fire broke out at IRPC's vacuum gas oil (VGO) hydrotreater, a

sulfur removing unit that provides feedstock to deep catalytic cracking unit

(DDC) for production of propylene and benzene of 150,000 tons year and

benzene oil of 360 million liters a year, in Rayong. Preliminarily, IRPC has

stopped production at the VGO and DCC for investigation. The company

already has an insurance of up to US$1.2bn, which covers both property

damage and business interruption, with deducible (which means the

insurance company will pay any expenses only when the property damage

and the business interruption exceed the mutually agreed level, US$5m and

60 days in this case).

- Worst case scenario, EPS forecast to decline 10-18%

In the worst case scenario that the fired VGO and the adjacent DCC have to

stop production for one and two months, respectively, for restoration and

that IRPC has to be responsible for the deducible of US$5m, 2014 EPS and

fair value will decrease by 10.5-18.4% and 1.4-2.9%, respectively, from

previously (the insurer will pay for the income if the units have to be closed

longer than two months).

- Possibly weaken share price in short term

We are reviewing 2014 earnings forecast and fair value (B4.20/share at

present) in order to reflect an impact from the fire incident. The share price

might be depressed in the short term, but if it decreases more than 1.4-

2.9% we have estimated, BUY is recommended.


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