Maybank Recommends IRPC “Buy Weakness” at TP ฿7.30 as Earnings Tend to Slow

Maybank Kim Eng Securities has revaluated IRPC Public Company Limited (IRPC) 12 months target price as its 3Q18 earnings tend to slow. Maybank lowers IPRC target price from ฿7.60/share to ฿7.30/share based on PBV of 1.55x, and also giving “Buy weakness” recommendation.

 

IRPC’s 3Q18 earnings are expected to weaken both core and net profits due to maintenance shutdown that resulted in lower capacity utilization and pressing GIM (Gross Integrated Margin). This may put pressure on a short-term investment sentiment, especially comparing with other downstream oil stocks, which have better earnings QoQ.

The earnings of IRPC tend to slow as the net profit is forecast at 2.5billion baht (-23.1% YoY, -38.4% QoQ) driven by a drop in stock gain to USD1.4/bbl (barrel) (+842 million baht) from +2.2 billion baht in 2Q18. This is in tandem with Accounting GIM expected to decline by 11.1% YoY and 18.1% QoQ to USD14.3/bbl.

 

IRPC’s normal profit has also been pressured by petrochemical & maintenance. Excluding stock and FX, Maybank estimates normalized profit at 1.8 billion baht, down -35.3% YoY and -20.6% QoQ, in line with weaker market GIM of -14.3% YoY and -6.9% QoQ to USD12.9/bbl, pressured by weaker chemical spreads include -5.4% QoQ drop in PP-Naphtha, -19.5% QoQ in HDPE-Naphtha and -11.1% QoQ in ABS-naphtha.

Meanwhile, GIM from petroleum would relatively be stable as the decline in crude premium would be offset by maintenance shutdown of Hyvahl and RDCC units for 45 and 26 days respectively. The crude run is forecast to fall by -0.5% YoY and -4.8% QoQ to 200 KBD, representing a utilization rate of 93.0%.

 

Maybank revises its fiscal year (FY) 2018-2019 earnings forecast down by 9.2-12.5% to 1.3 billion baht and 10.9 billion baht due to a drop in market GIM by 6.2% and 6.7% to USD13.6 and USD14/bbl respectively. This reflects the impact from maintenance shutdown and higher oil price and crude premium. In addition, Maybank revises up stock gain for 2018 to USD1 from USD0.5/bbl.

 

Risks:

• A lower-than-expected gross refining margin (GRM) and petrochemicals spreads.
• The start of the UHV project operation.