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IRPC

Fire accident affects 2014 fair value only slightly Rec. : BUY

IRPC Plc

We revise down 2014 earnings forecast and fair value by 25% and

3.1%, respectively, to reflect an impact from the fire accident in the

worst case scenario. As the share price already weakened to absorb

the negative factor yesterday, it is a good entry point now.


- Three-month halt for fired unit

According to IRPC, the company will close the fired vacuum gas oil

hydrotreater (VGOHT) for three months. The company might also need to

stop the production at the adjacent deep catalytic cracking unit (DDC) in the

first 20 days for investigation and change its production plan before

resuming 60% production of the DCC in the latter two months; despite a

lack of 50% raw material from VGOHT, it still has other 50percent from the

refinery and plans to buy 10percent from external source.

- Cut 2014 earnings forecast by 25%

We revise down our earnings forecast for 2014 in order to reflect the worst

case scenario that the damaged VGOHT has to halt its production for three

months and the DCC has to stop producing for 20 days before resuming

60% capacity for two months and ten days. With the property damage

expense estimated at B150m (equivalent to the deducible), 2014 EPS will

decrease 24.7percent from the previous forecast (which would depress profit in

2Q14 and 3Q14 before returning to a normal situation in 4Q14), under an

assumption that an insurance claim of B200m for the third month of

business interruption and an insurance claim for the excess property

damage expense apart from the B150m deducible are booked in 2015.

- Share price already absorbs bad news

Under the new forecast, 2014 fair value is B4.07, down 3.1percent from B4.20. A

3% decline in the share price yesterday was probably a reflection of the

negative news. We, therefore, recommend gradually accumulating IRPC for

its potential long-term growth from the existing investment plan.


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