IRPC PLC. IRPC < Bt3.82 > Recommendation New        :  HOLD Previous  :  FULLY VALUED Fair Value  :  Bt3.80

3Q09 net profit reported down 5% qoq Recorded 3Q09 earnings of Bt2.3bn, a drop of 5% qoq The company announced a 3Q09 net profit of Bt2,299mn (EPS Bt0.12), a decrease of 5% qoq and improved a lot from the loss of Bt4,430mn in the same quarter of last year. In petroleum, the company booked a net profit of Bt47mn down from the high Bt642mn last quarter due to a lower inventory gain and a narrower gross refining margin (GRM), however improved from the huge loss of Bt4,312mn in 3Q08 (mostly from an inventory loss). The sales volume was also down 5% yoy to 152,146 barrels/day due to a slowdown in refined oil demand. In petrochemicals, the company reported a net profit of Bt1,989mn, up 6.5% qoq and a jump from the profit of Bt400mn in the same period of last year. This was due to a wider margin spread of downstream products. In 3Q09, the company booked extra items from a forex gain on debentures of Bt115mn and an unrealised loss on forex, along with an interest rate swap of Bt23mn. If excluding the extra items, the company reported a normalised profit of Bt2,212mn (norm EPS Bt0.11), down 9% qoq. Lower GRM and spread will narrow 4Q09 earnings We expect the 4Q09 earnings to slow from the previous quarter, but to improve over the large loss of Bt20,562mn in the same quarter of last year when the company suffered a huge inventory loss. The key earnings pressure was a lower GRM, currently down to $1.2/barrel compared to a 3Q09 average of $3.14/barrel. Based on a Hydroskimming refinery, we believe the company will book a loss from operations from this currently low GRM. Also, the petrochemical margin spread has fallen from 3Q09 following new supply coming into the market. This will pressure the 4Q09 net profit in our view. With the 9M09 net profit accounting for 99% of our full year earnings forecast, we will likely upgrade our 2009 earnings projection after an analyst's meeting with the company. Upgrade rating to HOLD with a target price of Bt3.80 With the 9M09 net profit better than our expectation and a pending upcoming upgrade to our full year earnings forecast, we are upgrading our recommendation from Fully Valued to HOLD with a target price of Bt3.80 based on DCF. Earnings summary Year End Dec 31 2007 2008 2009F 2010F 2011F Sales (Btmn) 227,518 244,694 176,987 183,323 188,621 EBITDA (Btmn) 14,816 (13,925) 11,553 12,928 14,556 Normalised earinings (Btmn) 10,586 (18,631) 6,119 6,665 7,527 Earnings (Btmn) 13,683 (18,262) 6,119 6,665 7,527 Norm EPS (Bt) 0.54 (0.95) 0.31 0.34 0.38 EPS (Bt) 0.70 (0.93) 0.31 0.34 0.38 Norm PER (x) 6.5 (3.7) 11.2 10.3 9.1 PER (x) 5.0 N.A. 11.2 10.3 9.1 EV/EBITDA (x) 4.8 (6.0) 8.2 7.8 7.2 Free cash flow (Btmn) 19,371 (2,458) (6,508) (1,171) 585 CF/share (Bt) 0.6 0.0 0.6 0.5 0.6 BVPS (Bt) 4.8 3.5 3.7 3.9 4.2 P/BV (x) 0.7 1.0 0.9 0.9 0.8 DPS (Bt) 0.22 0.18 0.12 0.12 0.12 Dividend yield (%) 6.3% 5.2% 3.4% 3.4% 3.4% Net debt/equity (x) 0.1 0.3 0.4 0.4 0.5 ROA (%) 10.3% -17.5% 5.3% 5.2% 5.4% ROE (%) 14.8% -26.4% 8.4% 8.6% 9.1% Source : Company reports and KELIVE Research estimates. Source : IRPC and KELIVE Research estimate IRPC income statement (Btmn) 3Q09 2Q09 QOQ 3Q08 YOY 9M09 FY09F % Sales 47,874 40,295 19% 68,727 (30%) 114,245 176,987 65% COGS 44,755 36,845 21% 71,973 (38%) 105,278 166,368 63% Gross profit 3,119 3,450 (10%) (3,246) N.A. 8,967 10,619 84% Gross margin (%) 7% 9% N.A. -5% N.A. 8% 6% N.A. SG&A 873 776 12% 1,431 (39%) 2,388 3,304 72% EBITDA 3,403 3,587 (5%) (3,615) N.A. 9,478 11,553 82% EBITDA margin (%) 7% 9% N.A. -5% N.A. 8% 7% N.A. Interest expense 320 319 0% 395 (19%) 995 1,822 55% Net profit before extra items 2,212 2,420 (9%) (4,850) N.A. 6,087 6,119 99% Extraordinary gain (loss)                  - Forex gain (loss) (23 ) 363 N.A. 300 N.A. 197 0 N.A. - Other (loss) 115 (360 ) N.A. 119 (4%) 60 0 N.A. Net profit 2,300 2,423 (5%) (4,430) N.A. 6,344 6,119 104% EPS (Bt) before extra items 0.11 0.12 (9%) (0.25) N.A. 0.31 0.31 99% EPS (Bt) 0.12 0.12 (5%) (0.23) N.A. 0.32 0.31 104% Source : KELIVE Research estimate Income Statement (Btmn) 2007 2008 2009F 2010F 2011F Sales 227,518 244,694 176,987 183,323 188,621 Other income 1,194 587 906 744 825 Total revenues 228,712 245,281 177,893 184,067 189,446 Cost of Goods sold 208,935 254,542 162,981 167,645 171,294 Depreciation and Amortization 3,078 3,224 3,387 3,762 4,123 SG&A and Others Expenses 4,961 4,664 3,358 3,495 3,596 EBIT 11,738 (17,149) 8,166 9,165 10,433 Interest expenses 1,107 1,398 1,822 2,234 2,669 EBT 10,631 (18,547) 6,345 6,931 7,764 Minority Interest 14 12 12 12 13 Equity Acc. + Extraordinary Gains 3,098 369 0 0 0 Net profit 13,683 (18,262) 6,119 6,665 7,527 Source : IRPC and KELIVE Research estimate Balance Sheet (Btmn) 2007 2008 2009F 2010F 2011F ASSETS            Cash & Deposits 12,673 8,988 5,275 6,071 9,759 Accounts receivable 13,315 6,038 6,999 7,249 7,459 Inventories 38,364 19,731 18,599 19,131 19,548 Other current assets 3,980 3,163 2,555 2,677 2,735 Total current assets 68,331 37,919 33,427 35,128 39,500 Investments 86 53 53 53 53 Property, Plant and Equipment 62,311 64,276 80,858 90,245 99,271 Other assets 2,448 1,864 1,865 1,864 1,865 Total Assets 133,175 104,112 116,203 127,290 140,688 LIABILITIES            OD + Current portion of L-T debt 56 8,277 15,527 22,027 30,027 Account payable + Trust Receipt 17,094 4,469 6,698 6,890 7,039 Other current liabilities 4,626 3,624 2,434 2,498 2,543 Total current liabilities 21,776 16,370 24,659 31,415 39,610 Long term debts 0 0 0 0 0 Debentures + CDs 18,417 18,364 18,364 18,364 18,364 Other liabilities 206 184 195 189 192 Total liabilities 40,399 34,918 43,218 49,968 58,166 Minority Interest 49 48 60 73 85 SHAREHOLDERS' EQUITIES            Shares + Warrants 19,500 19,706 19,706 19,706 19,706 Premium on shares 26,798 27,184 27,184 27,184 27,184 Retained earnings + Revaluation 46,687 22,575 26,354 30,679 35,866 Total shareholders' equity 92,728 69,146 72,925 77,250 82,437 Total liabilities and equity 133,175 104,112 116,203 127,290 140,688 Source : IRPC and KELIVE Research estimate Statement of Cash Flow (Btmn) 2007 2008 2009F 2010F 2011F Net profit 13,683 (18,262) 6,119 6,665 7,527 + Depreciation & Amortization 3,078 3,224 3,387 3,762 4,123 - Sales of fixed assets - - - - - + Decrease in working capital (6,793) 13,234 1,751 (616) (505) + Others 918 2,463 24 46 (9) Operating cashflows 10,887 659 11,280 9,858 11,136             Purchase of fixed assets (4,781) (4,579) (19,969) (13,149) (13,149) Investment in affiliated 7,857 1,065 414 (46) 9 Other investing activities 4,304 (1,004) - - - Investing cashflows 7,380 (4,518) (19,555) (13,195) (13,140)             Payment of dividend (4,280) (5,850) (2,340) (2,340) (2,340) Equity Increase 9 592 12 12 13 Other debt financing 5,661 2,746 3,353 (835) (3,669) Internal financing cash flows 1,390 (2,512) 1,025 (3,162) (5,996)             External financing (19,657) 6,372 7,250 6,500 8,000 Issuing debentures and CDs 18,417 (53) - - - Borrowing from banks (38,074) 6,424 7,250 6,500 8,000             Last year outstanding debt 29,831 18,583 26,728 33,990 40,484 This year outstanding debt 18,583 26,728 33,990 40,484 48,487 Source : IRPC and KELIVE Research estimate Due to different characteristics, objectives and strategies of institutional and retail investors, the research reports of Kim Eng Research and KELIVE Research may differ in either recommendation or target price, or both. KELIVE Research is intended for retail investors (http://kelive.kimeng.co.th  )while Kim Eng Research is intended only for institutional investors based outside Thailand ( www.research.kimeng.com ). It is therefore important for each investor to read and understand the assumptions and basis of recommendation of each report. This research report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation, or particular needs of any specific person who may receive this report. The information contained herein is provided on the basis of information received or provided to us, but its completeness and accuracy are not guaranteed. Opinions expressed in this report are subject to change without notice, and no part of this publication is to be construed as an offer, or solicitation of an offer, to buy or sell any securities or financial instruments whether referred to therein or otherwise. We do not accept any liability whatsoever whether direct or indirect that may arise from the use of information contained in this report, or a reliance on our opinion expressed in this report. Kim Eng Securities (Thailand) Public Company Limited, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.