We revise down IRPC's FY2014 fair value and earnings forecast to
reflect lower-than-expected 1H14 earnings result. However, the
share price has already dropped and showed limited upside. We
recommend waiting for IRPC's profitable turning point in 2015.
- Value added in long run from new investment plans
According to the analyst meeting on August 14, after completing UHV
project in April 2015, IRPC has planned to launch new investment projects
to add value with excess propylene products from UHV project by producing
polypropylene products with considerably higher spread. The projects are
worth of US$220m, expected to be completed in late-2016. We have not
included the new projects in our earnings forecast yet since they have to
wait for approval from the Board of Directors in late-2015.
- Revise down FY2014 earnings forecast
We revise down FY2014 earnings forecast to reflect lower-than-expected
1H14 earnings result. 1H14 net profit made up 39.5% of the new FY2014
earnings forecast. 2H14 earnings are expected to improve from 1H14
thanks to significantly better benefit from Delta program (compared to
1H14) and profit from hedging and land sales. IRPC's net profit is estimated
to grow by 60%yoy in 2014 and jump by 207%yoy in 2015 after the UHV
project is completed; the project would increase GIM (gross integrated
margin) by at least US$2-3/barrel.
- New fair value is B3.80. Reiterate BUY
Under the new forecast, we revise down FY2014 fair value from B4.07 to
B3.80, reiterating BUY. The share price have substantially absorbed the
negative factors already. IRPC's profit growth will be strong in a long run
thanks to ongoing and new investment projects.