IRPC thailand Big windfall from crude inventory gain
■ As IRPC’s crude inventory holding period is longer than other Thai refiners’, crude inventory gains
were likely as high as US$10/bbl in 1Q21F.
■ Stronger-than-expected ABS and PP spreads are near-term EPS drivers. Locking in large crude inventory gains in 1Q21F We believe IRPC thailand is likely to report sizeable accounting gains on its crude oil inventory following the sharp increase in global crude oil price in 1Q21.
Based on IRPC’s guidance, its crude inventory holding period is c.60-65 days. This resulted in relatively high inventory gains in Jan-Feb 21 of US$12 per barrel of crude intake per month (the difference between average oil price in Jan 21 vs. Nov 20 and Feb 21 vs. Dec 20 was US$5.3/bbl and US$6.5/bbl, respectively).
Accordingly, we estimate IRPC saw crude inventory gains of US$10/bbl in 1Q21F, relatively larger than other Thai refiners’ c.US$ – 6/bbl, based on our projections. Near-term support from strong chemical spreads IRPC has acrylonitrile-butadiene-
IRPC should also benefit from a strong polypropylene (PP) spread of US$626/t in 1Q21 vs. US$640/t in 4Q20 despite the sharp increase in naphtha cost, thanks to resilient demand from auto and electronic parts production. Accordingly, we believe IRPC’s chemical integrated margin increased to US$8.3/bbl in 1Q21F from US$7.8/bbl in 4Q20. Adjusting shutdown schedule to capture strong chemical spreads IRPC guided that it is considering pushing back maintenance activity for its ABS/PS plants from 2Q21F as previously scheduled to 2H21F in order to tap the high ABS spread.
As IRPC already shut its crude distillation unit #1 in 1Q21 for 1 month, feedstock needed for downstream chemical plants should be sufficient in 2Q21-4Q21F. Raise 2021F EPS forecast on inventory gain; upgrade to Hold We raise IRPC’s 2021F EPS by 0 , largely on inventory gains of THB .0bn to be reported in 1Q21F. We also revise up 2022-2023F EPS by 7-37% to reflect higher chemical spread assumptions. With the higher EPS forecasts, our TP is lifted to THB4.2/s, based on 1.05x 2021F P/BV (0.5 s.d. below 2010-2020 mean), and upgrade IRPC from Reduce to Hold as we doubt its ability to reduce operating cost.
We prefer SCC and PTTGC in the Thai chemical sector. Upside risks to our forecasts are better than-expected refinery utilisation rates and stronger-than-expected ABS spread. Downside risks include the reversal of inventory gain to inventory loss if crude oil price falls below US$65/bbl and higher-than-expected operating cost.
– By CIMB Bank Research
