Buy (17E TP Bt6.00) Company Update
IRPC Buy (17E TP Bt6.00)
Company Update
Close Bt5.40
Energy & Utilities January 25, 2017
Earnings upgrade / Earnings downgrade / Overview unchanged
Promising long‐term prospects Price Performance (%) Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
0.500
0.517
KT ZMICO vs. consensus Share data
‐4.0%
‐13.0%
Reuters / Bloomberg
IRPC.BK/IRPC TB
Paid‐up Shares (m)
20,434.42
Par (Bt)
1.00
Market cap (Bt bn / US$ m) Foreign limit / actual (%) 52 week High / Low (Bt) Avg. daily T/O (shares 000)
110.00/3,132.00 49.00/14.02 5.45/4.10 129,106.00
NVDR (%)
8.69
Estimated free float (%)
51.9
Beta
0.83
URL
www.irpc.co.th
CGR Anti‐corruption
Level 4 (Certified)
Growth story to continue We expect the company’s core earnings to accelerate in 2017E, with higher market GIM driven by the incremental margin from the Everest project and UHV project despite a sustained weak PP spread in the year on the new supply additions, with downside from China’s new supply growth, particularly from the unconventional and unfriendly coal‐to‐ chemical likely to be the source of upside risk to propylene/polypropylene (PP) spreads. Meanwhile, the PP expansion project with the kickoff targeted for 2H17E, in accordance with the return of the PP market to equilibrium after 2017E, will be its next growth catalysts in the years ahead and the source of upside risk to our estimates and valuation. Thus, we maintain our Buy rating on IRPC. Expect stronger 4Q16E NP of Bt1.8bn on improving accounting GIM We expect IRPC’s 4Q16E NP at Bt1.8bn (+298% YoY, 36% QoQ) given the expected higher accounting GIM both YoY and QoQ, despite an expected forex loss and the absence of a tax credit in the quarter (vs. a Bt428mn tax credit in 3Q16). We expect its 4Q16E market GIM at US$12.6/bbl, with the refinery’s market GRM improving, particularly QoQ, against the weakening PP spread on higher naphtha cost, as well as the benefit of the incremental margin from the Everest project and UHV project (but immaterial in the case of the UHV project due to the seasonally‐high fuel cost). Meanwhile, its accounting GIM is projected at US$13.6/bbl in 4Q16E (vs. US$9.9/bbl in 4Q15 and US$11.4/bbl in 3Q16) thanks to stock gain more than offsetting the hedging loss with a net positive impact of US$1/bbl (~Bt580mn) in the quarter. Thus, we fine‐ tune our 2016E core profit and NP by 5% to Bt8.1bn (excluding a Bt1.45bn tax credit) and to Bt9.8bn, respectively. 2017‐18E earnings revision We make an earnings revision in 2017‐18E NP by ‐3%/+12% to reflect 1) a lower crude run by 10% to 180kbd in 2017E given the entire 30‐day planned shutdown in Feb‐Mar, 2017; 2) the fine‐tuning of depreciation expenses and interest expenses by +US$0.3/bbl following the estimated higher UHV project cost by 10% (with the cost overrun capitalized as the project cost); 3) a slight increase in market GIM in 2018E to US$14.5/bbl (vs. US$14.0/bbl earlier); and 4) the upward revision on the profit contribution from affiliates. Our newly‐revised earnings call for core profit to expand by 15% CAGR in 2017‐18E, underpinned by the higher market GIM to US$14‐14.5/bbl as the growth catalyst with the higher incremental margin from the Everest project and UHV project to help offset the sustained weak PP spread. Meanwhile, NP will grow at 4% CAGR in 2017‐18E given the absence of a tax credit during the years. We slightly raise our 2017E TP to Bt6.0/share (vs. Bt5.7 earlier). Financials and Valuation FY Ended 31 Dec
2014
2015
2016E
2017E
2018E
Patcharin Karsemarnuntana
Revenues (Btmn) Core profit (Btmn) Net profit (Btmn) EPS (Bt) EPS growth (%) Dividend (Bt) BV (Bt)
281,589 (8,560) (5,235) (0.26) nm 0.08 3.32
214,172 5,641 9,402 0.46 nm 0.22 3.71
185,484 8,070 9,809 0.48 4.33 0.24 3.96
198,588 8,990 9,118 0.45 (7.05) 0.22 4.18
236,631 10,686 10,686 0.52 17.20 0.26 4.46
FY Ended 31 Dec
2014
2015
2016E
2017E
2018E
Analyst, no 17834
PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
nm nm 1.63 1.48 (7.31) 93.07
11.74 10.68 1.46 4.07 13.09 69.73
11.25 8.04 1.36 4.44 12.52 61.70
12.10 7.76 1.29 4.13 10.97 48.90
10.33 6.58 1.21 4.84 12.12 36.89
[email protected] 66 (0) 2695‐5837
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
Figure 1: IRPC’s 4Q16E and 2016E earnings preview Profit and Loss (Btmn) Year‐end 31 Dec Revenue Gross profit EBITDA Interest expense and financial costs Other income Income tax Forex gain (loss) Other extraordinary Items Gn (Ls) from affiliates Minority interests Net profit (loss) Core profit (loss) Reported EPS (Bt) Gross margin (%) EBITDA margin (%) Net margin (%) Current ratio (x) Interest coverage (x) Interest‐bearing debt / equity (x) BVPS (Bt) ROE (%)
4Q15 49,024 2,992 2,540 (235) (664) (31) 209 (10) (29) (4) 447 249 0.02 6.10 5.18 0.91 0.99 5.15 0.74 3.71 2.37
3Q16 45,673 3,473 3,515 (472) (571) 189 257 1 32 (8) 1,307 621 0.06 7.60 7.70 2.86 0.73 3.98 0.84 3.88 6.64
4Q16E 52,178 5,548 5,244 (495) (338) (547) (418) ‐ 20 (7) 1,781 2,199 0.09 10.63 10.05 3.41 0.93 7.20 0.66 3.96 8.88
% YoY 6.4 85.5 106.5 110.3 (49.1) 1,687.3 nm (100.0) nm 57.4 298.2 784.1 335.9
% QoQ 14.2 59.8 49.2 4.9 (40.8) nm nm (100.0) (37.3) (15.2) 36.3 254.2 45.3
2015 214,172 16,258 15,285 (1,192) (702) (2,346) (393) 4,154 (184) (21) 9,402 5,641 0.46 7.59 7.14 4.39 0.99 8.46 0.74 3.71 13.09
2016E 185,484 20,535 19,947 (1,404) (2,442) (667) 289 1 43 (25) 9,809 8,070 0.48 11.07 10.75 5.29 0.93 9.98 0.66 3.96 12.52
% YoY (13.4) 26.3 30.5 17.8 247.9 (71.6) nm (100.0) (123.2) 15.0 4.3 43.1 4.3
Source: KT ZMICO Research
Figure 2: IRPC’s quarterly market GIM (gross integrated margin) breakdown
Figure 3: IRPC’s quarterly market GIM and accounting GIM
Source: Company, KT ZMICO Research
Source: Company, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
Figure 4: Earnings revision in 2017‐18E
2016E 180 65.7 13.1 6.0 2.6 0.6
Crude run (kbd) (mnbbl) Market GIM (US$/bbl) OPEX Depreciation Interest expenses
New 2017E 180 65.7 14.0 6.3 3.1 0.8
2018E 200 73.0 14.5 6.0 2.8 0.7
Old 2017E 200 73.0 14.0 5.7 2.6 0.6
2018E 200 73.0 14.0 6.0 2.6 0.5
% chg. from old 2017E 2018E ‐10% 0% ‐10% 0% 0% 3% 10% 0% 18% 8% 44% 47%
8,990
10,686
9,239
9,521
‐3%
12%
128 9,118 0.45 6.0
‐ 10,686 0.52
128 9,367 0.46 5.7
‐ 9,521 0.47
0% ‐3% ‐3% 5%
nm 12% 12%
unit: Btmn
Core profit Tax credit Forex gain (loss) NP EPS (Bt) 2017E SOTP‐based TP (Bt)
8,070 1,449 290 9,809 0.48
Source: KT ZMICO Research Figure 5: China’s propylene supply additions
Figure 6: Figure 5: IRPC’s PBV Band
Source: IRPC
Source: Bloomberg, KT ZMICO Research
Figure 7: IRPC’s valuation comparison with regional peers NAME
Mkt Cap (US$Mn)
PER (x) 16E 17E
PBV (x) 16E 17E
EV/EBITDA (x) 16E 17E
YLD (%) 16E 17E
ROE (%) 16E 17E
PETRONAS CHEMICALS GROUP BHD FORMOSA PETROCHEMICAL CORP FORMOSA PLASTICS CORP NAN YA PLASTICS CORP TAIWAN IRPC PCL PTT GLOBAL CHEMICAL PCL SIAM CEMENT PCL/THE INDORAMA VENTURES PCL THAI OIL PCL THAILAND HANWHA CHEMICAL CORP SAMSUNG SDI CO LTD LG CHEM LTD LOTTE CHEMICAL CORP S. KOREA AVERAGE
12,912.5 32,334.1 18,300.3 18,578.4 3,131.6 8,727.8 16,891.8 4,952.8 4,139.6 3,880.4 6,488.0 15,924.5 11,274.6
20.6 16.7 17.1 16.4 17.7 11.2 12.6 11.6 15.6 7.7 11.4 5.9 20.7 13.7 7.7 12.0 13.7
2.2 3.5 1.9 1.7 2.3 1.4 1.3 2.4 2.0 1.4 1.7 0.9 0.7 1.3 3.7 1.7 1.9
10.4 11.2 27.8 18.9 17.1 8.0 7.1 9.5 10.6 5.8 8.0 6.5 7.4 5.8 4.8 6.2 10.4
2.4 4.6 4.2 4.3 3.9 4.4 4.4 3.7 2.2 5.8 4.1 1.0 0.9 1.8 0.7 1.1 3.0
10.6 21.0 11.2 10.3 13.3 12.5 10.3 22.4 15.1 19.2 16.3 15.4 3.2 9.9 20.5 12.3 13.9
18.1 17.6 16.0 17.6 17.3 12.1 10.6 11.5 17.7 9.8 11.7 6.6 12.8 11.5 7.3 9.5 12.9
2.1 3.3 1.8 1.7 2.2 1.3 1.2 2.2 1.9 1.3 1.6 0.8 0.7 1.3 3.4 1.5 1.8
9.2 11.9 23.3 16.6 15.3 7.8 6.1 9.3 9.6 6.3 7.5 6.9 5.5 5.3 4.6 5.6 9.5
2.8 4.2 4.4 4.0 3.8 4.1 4.7 3.8 1.9 4.6 4.0 0.9 1.0 1.8 0.8 1.1 3.0
Source: Bloomberg, KT ZMICO Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
11.1 18.4 11.5 9.4 12.6 11.0 11.4 20.0 11.1 13.8 14.2 12.4 5.2 11.1 18.5 11.8 12.9
Financial tables PROFIT & LOSS (Btm) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Forex gain (loss) Extra Items Gain (loss) from affiliates Minority interests Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btm) Cash and equivalents Accounts receivable Inventories PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Paid‐up shares Shareholder equity Minority interests Total liab. & shareholder equity CASH FLOW (Btm) Net income Forex and other extraordinary adjustments Depreciation & amortization Change in working capital Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2013 292,593 (287,695) 4,897 (5,494) 4,093 4,691 (597) (1,560) 2,390 233 (7) (762) 1,424 (39) (23) 826 0.04 0.04 164 0.01 0.10
2014 281,589 (287,930) (6,341) (5,444) (6,826) 4,959 (11,785) (1,424) 2,411 (10,798) 2,398 932 2,393 (139) (21) (5,235) (0.26) (0.26) (8,560) (0.42) 0.08
2015 214,172 (197,913) 16,258 (6,172) 15,285 5,199 10,086 (1,192) (702) 8,192 (2,346) (393) 4,154 (184) (21) 9,402 0.46 0.46 5,641 0.28 0.22
2016E 185,484 (164,948) 20,535 (6,521) 19,947 5,932 14,015 (1,404) (2,442) 10,168 (667) 289 1 43 (25) 9,809 0.48 0.48 8,070 0.39 0.24
2017E 198,588 (179,809) 18,779 (6,289) 19,591 7,101 12,490 (1,851) 560 11,200 (2,240) 128 0 50 (20) 9,118 0.45 0.45 8,990 0.44 0.22
2018E 236,631 (214,415) 22,217 (7,526) 21,877 7,186 14,691 (1,693) 360 13,358 (2,672) 0 0 50 (50) 10,686 0.52 0.52 10,686 0.52 0.26
2013 5,124 20,767 34,798 84,428 17,490 162,608 10,575 36,138 87,081 20,434 75,458 68 162,608
2014 2,009 11,192 25,344 102,120 22,134 162,798 18,641 46,498 94,894 20,434 67,834 70 162,798
2015 3,576 8,942 21,306 115,997 13,352 163,174 7,201 49,235 87,296 20,434 75,804 74 163,174
2016E 3,397 10,163 20,336 113,231 12,436 159,563 15,557 37,777 78,536 20,434 80,929 98 159,563
2017E 6,990 10,882 22,168 108,636 12,271 160,946 27,420 21,291 75,513 20,434 85,315 118 160,946
2018E 3,066 12,966 26,435 104,105 12,159 158,731 26,402 10,254 67,512 20,434 91,051 168 158,731
2013 826 762 4,691 10,188 16,466 (14,335)
2014 (5,235) (932) 4,959 7,770 6,562 (22,427)
2015 9,402 393 5,199 9,965 24,959 (19,468)
2016E 9,809 (289) 5,932 (5,350) 10,102 (3,278)
2017E 9,118 (128) 7,101 (879) 15,211 (2,630)
2018E 10,686 0 7,186 (2,331) 15,541 (2,792)
(14,335) (2,000) (9) (1,839) 317 (3,532) (1,400) 2,132 0.10
(22,427) 18,427 (710) (1,839) (3,129) 12,749 (3,116) (15,864) (0.78)
(19,468) (8,703) 1,429 (3,065) 6,416 (3,924) 1,567 5,491 0.27
(3,278) (3,102) 34 (4,700) 764 (7,003) (179) 6,825 0.33
(2,630) (4,624) 30 (4,732) 337 (8,989) 3,593 12,581 0.62
(2,792) (12,055) (0) (4,951) 333 (16,673) (3,924) 12,750 0.62
2013 0.1 100.6 nm 1.7 1.4 (0.2) 0.3 0.1 3.0
2014 (3.8) (266.8) nm (2.3) (2.4) (4.2) (1.9) (3.0) 22.2
2015 (23.9) (323.9) nm 7.6 7.1 4.7 4.4 2.6 28.6
2016E (13.4) 30.5 4.3 11.1 10.8 7.6 5.3 4.4 6.6
2017E 7.1 (1.8) (7.0) 9.5 9.9 6.3 4.6 4.5 20.0
2018E 19.2 11.7 17.2 9.4 9.2 6.2 4.5 4.5 20.0
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, M‐CHAI, CRANE. KT ZMICO is a co underwriter of RPH.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market UNDERWEIGHT: The industry, as defined by the analyst's returns over a six‐month period due to specific coverage universe, is expected to underperform the relevant catalysts primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 10% or more over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
KT ZMICO Securities Company Limited Head Office
WWW.KTZMICO.COM
8th, 15th‐17th,19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok, Thailand 10500 Telephone: (66‐2) 695‐5000 Fax: (66‐2) 695‐5173 KT ZMICO Connect 662 695 5555
Central World Branch
Amarin Branch
22nd Floor, Amarin Building, 496‐502 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 018‐6200 Fax: (66‐2) 018‐6298, (66‐2) 018‐6299
8th Floor, Ton Son Tower, 900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 626‐6000 Fax: (66‐2) 626‐6111
Phaholyothin Branch
Sindhorn Branch
Viphavadee Branch
2nd Floor, Sindhorn Tower 1, 130‐132 Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 627‐3550 Fax: (66‐2) 627‐3582, 627‐3600
G Floor, Lao Peng Nguan 1 Bldg., 333 Soi Cheypuand, Viphavadee‐Rangsit Road, Ladyao, Jatujak, Bangkok 10900 Telephone: (66‐2) 013‐8600 Fax: (66‐2) 618‐8569
BangKhae Branch
Chiang Mai Branch
Pak Chong Branch
999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan, Bangkok 10330 Telephone: (66‐2) 264‐5888 Fax: (66‐2) 264 5899
1291/1, Shinnawatra Tower II, 3rd Floor, Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66‐2) 686‐1500 Fax: (66‐2) 686‐1666
Ploenchit Branch
518 The Mall Group Building Bangkhae Branch, 6th Floor, Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Telephone: (66‐2) 454‐9979 Fax: (66‐2) 454‐9970
422/49 Changklan Road, Changklan Subdistrict, Amphoe Meuang, Chiang Mai 50100 Telephone: (053) 270‐072 Fax: (053) 272‐618
173 175, Mittapap Road, Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Telephone: (044) 279‐511 Fax: (044) 279‐574
Korat Branch
Khon Kaen Branch
Chonburi Branch
624/9 Changphuek Road, T.Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171
5th Floor, Charoen Thani Princess Hotel, 260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000 Telephone: (043) 389‐171‐193 Fax: (043) 389‐209
4th Floor, Forum Plaza Bldg., 870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287‐635 Fax: (038) 287‐637
Pattaya Branch
Chachoengsao Branch
Hat Yai Branch
Easy Point 2, 392/65 Moo.9, T.Nong Prue, A. Bang Lamung, Chonburi 20260 Telephone: (038) 420‐965 Fax: (038) 420‐968
108/34‐36 Mahajakkrapad Road, T.Namuang, A.Muang, Chachoengsao 24000 Telephone: (038) 813‐088 Fax: (038) 813‐099
200/301, 200/303 JULDIS HATYAI PLAZA Floor 3 , Niphat‐Uthit 3 Rd, Hatyai Songkhla 90110 Telephone: (074) 355530‐3 Fax: (074) 355534
Phuket Branch
22/61‐63, Luang Por Wat Chalong Road, Talat Yai, Mueang Phuket, Phuket 83000 Telephone: (076) 222‐811, (076) 222‐683 Fax: (076) 222‐861
Phitsanulok Branch
227/171 Borom Trilokkanat Road, Muang, Phitsanulok 65000 Telephone: 055‐219‐255 to 8 Fax: 055‐219‐259
Nakhon Pathom
Cyber Branch Ayutthaya
Cyber Branch @ North Nana
Cyber Branch Chiangrai
KrungThai Bank, Rojana Branch 253 Moo 5, Rojana Road, Phai Ling, Phra Nakhon Si Ayutthaya, Phra Nakhonsi Ayutthaya, 13000 Telephone: 035‐242‐477 Fax: 035‐242‐476
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd., Klong Toey Nua Subdistrict , Wattana District , Bangkok 10110 Telephone: 083‐490‐2871
River Hotel (Building 3rd),1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
KrungThai Bank, Hayaek Phokhun Mengrai Branch 116/19 Moo 19, Highway 110 Road, Rop Wiang, Mueang Chiang Rai, Chiang Rai, 57000 Telephone: 053‐715‐067 Fax: 053‐715‐068
Company Update
Close Bt5.40
Energy & Utilities January 25, 2017
Earnings upgrade / Earnings downgrade / Overview unchanged
Promising long‐term prospects Price Performance (%) Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
0.500
0.517
KT ZMICO vs. consensus Share data
‐4.0%
‐13.0%
Reuters / Bloomberg
IRPC.BK/IRPC TB
Paid‐up Shares (m)
20,434.42
Par (Bt)
1.00
Market cap (Bt bn / US$ m) Foreign limit / actual (%) 52 week High / Low (Bt) Avg. daily T/O (shares 000)
110.00/3,132.00 49.00/14.02 5.45/4.10 129,106.00
NVDR (%)
8.69
Estimated free float (%)
51.9
Beta
0.83
URL
www.irpc.co.th
CGR Anti‐corruption
Level 4 (Certified)
Growth story to continue We expect the company’s core earnings to accelerate in 2017E, with higher market GIM driven by the incremental margin from the Everest project and UHV project despite a sustained weak PP spread in the year on the new supply additions, with downside from China’s new supply growth, particularly from the unconventional and unfriendly coal‐to‐ chemical likely to be the source of upside risk to propylene/polypropylene (PP) spreads. Meanwhile, the PP expansion project with the kickoff targeted for 2H17E, in accordance with the return of the PP market to equilibrium after 2017E, will be its next growth catalysts in the years ahead and the source of upside risk to our estimates and valuation. Thus, we maintain our Buy rating on IRPC. Expect stronger 4Q16E NP of Bt1.8bn on improving accounting GIM We expect IRPC’s 4Q16E NP at Bt1.8bn (+298% YoY, 36% QoQ) given the expected higher accounting GIM both YoY and QoQ, despite an expected forex loss and the absence of a tax credit in the quarter (vs. a Bt428mn tax credit in 3Q16). We expect its 4Q16E market GIM at US$12.6/bbl, with the refinery’s market GRM improving, particularly QoQ, against the weakening PP spread on higher naphtha cost, as well as the benefit of the incremental margin from the Everest project and UHV project (but immaterial in the case of the UHV project due to the seasonally‐high fuel cost). Meanwhile, its accounting GIM is projected at US$13.6/bbl in 4Q16E (vs. US$9.9/bbl in 4Q15 and US$11.4/bbl in 3Q16) thanks to stock gain more than offsetting the hedging loss with a net positive impact of US$1/bbl (~Bt580mn) in the quarter. Thus, we fine‐ tune our 2016E core profit and NP by 5% to Bt8.1bn (excluding a Bt1.45bn tax credit) and to Bt9.8bn, respectively. 2017‐18E earnings revision We make an earnings revision in 2017‐18E NP by ‐3%/+12% to reflect 1) a lower crude run by 10% to 180kbd in 2017E given the entire 30‐day planned shutdown in Feb‐Mar, 2017; 2) the fine‐tuning of depreciation expenses and interest expenses by +US$0.3/bbl following the estimated higher UHV project cost by 10% (with the cost overrun capitalized as the project cost); 3) a slight increase in market GIM in 2018E to US$14.5/bbl (vs. US$14.0/bbl earlier); and 4) the upward revision on the profit contribution from affiliates. Our newly‐revised earnings call for core profit to expand by 15% CAGR in 2017‐18E, underpinned by the higher market GIM to US$14‐14.5/bbl as the growth catalyst with the higher incremental margin from the Everest project and UHV project to help offset the sustained weak PP spread. Meanwhile, NP will grow at 4% CAGR in 2017‐18E given the absence of a tax credit during the years. We slightly raise our 2017E TP to Bt6.0/share (vs. Bt5.7 earlier). Financials and Valuation FY Ended 31 Dec
2014
2015
2016E
2017E
2018E
Patcharin Karsemarnuntana
Revenues (Btmn) Core profit (Btmn) Net profit (Btmn) EPS (Bt) EPS growth (%) Dividend (Bt) BV (Bt)
281,589 (8,560) (5,235) (0.26) nm 0.08 3.32
214,172 5,641 9,402 0.46 nm 0.22 3.71
185,484 8,070 9,809 0.48 4.33 0.24 3.96
198,588 8,990 9,118 0.45 (7.05) 0.22 4.18
236,631 10,686 10,686 0.52 17.20 0.26 4.46
FY Ended 31 Dec
2014
2015
2016E
2017E
2018E
Analyst, no 17834
PER (x) EV/EBITDA (x) PBV (x) Dividend yield (%) ROE (%) Net gearing (%)
nm nm 1.63 1.48 (7.31) 93.07
11.74 10.68 1.46 4.07 13.09 69.73
11.25 8.04 1.36 4.44 12.52 61.70
12.10 7.76 1.29 4.13 10.97 48.90
10.33 6.58 1.21 4.84 12.12 36.89
[email protected] 66 (0) 2695‐5837
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
Figure 1: IRPC’s 4Q16E and 2016E earnings preview Profit and Loss (Btmn) Year‐end 31 Dec Revenue Gross profit EBITDA Interest expense and financial costs Other income Income tax Forex gain (loss) Other extraordinary Items Gn (Ls) from affiliates Minority interests Net profit (loss) Core profit (loss) Reported EPS (Bt) Gross margin (%) EBITDA margin (%) Net margin (%) Current ratio (x) Interest coverage (x) Interest‐bearing debt / equity (x) BVPS (Bt) ROE (%)
4Q15 49,024 2,992 2,540 (235) (664) (31) 209 (10) (29) (4) 447 249 0.02 6.10 5.18 0.91 0.99 5.15 0.74 3.71 2.37
3Q16 45,673 3,473 3,515 (472) (571) 189 257 1 32 (8) 1,307 621 0.06 7.60 7.70 2.86 0.73 3.98 0.84 3.88 6.64
4Q16E 52,178 5,548 5,244 (495) (338) (547) (418) ‐ 20 (7) 1,781 2,199 0.09 10.63 10.05 3.41 0.93 7.20 0.66 3.96 8.88
% YoY 6.4 85.5 106.5 110.3 (49.1) 1,687.3 nm (100.0) nm 57.4 298.2 784.1 335.9
% QoQ 14.2 59.8 49.2 4.9 (40.8) nm nm (100.0) (37.3) (15.2) 36.3 254.2 45.3
2015 214,172 16,258 15,285 (1,192) (702) (2,346) (393) 4,154 (184) (21) 9,402 5,641 0.46 7.59 7.14 4.39 0.99 8.46 0.74 3.71 13.09
2016E 185,484 20,535 19,947 (1,404) (2,442) (667) 289 1 43 (25) 9,809 8,070 0.48 11.07 10.75 5.29 0.93 9.98 0.66 3.96 12.52
% YoY (13.4) 26.3 30.5 17.8 247.9 (71.6) nm (100.0) (123.2) 15.0 4.3 43.1 4.3
Source: KT ZMICO Research
Figure 2: IRPC’s quarterly market GIM (gross integrated margin) breakdown
Figure 3: IRPC’s quarterly market GIM and accounting GIM
Source: Company, KT ZMICO Research
Source: Company, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
Figure 4: Earnings revision in 2017‐18E
2016E 180 65.7 13.1 6.0 2.6 0.6
Crude run (kbd) (mnbbl) Market GIM (US$/bbl) OPEX Depreciation Interest expenses
New 2017E 180 65.7 14.0 6.3 3.1 0.8
2018E 200 73.0 14.5 6.0 2.8 0.7
Old 2017E 200 73.0 14.0 5.7 2.6 0.6
2018E 200 73.0 14.0 6.0 2.6 0.5
% chg. from old 2017E 2018E ‐10% 0% ‐10% 0% 0% 3% 10% 0% 18% 8% 44% 47%
8,990
10,686
9,239
9,521
‐3%
12%
128 9,118 0.45 6.0
‐ 10,686 0.52
128 9,367 0.46 5.7
‐ 9,521 0.47
0% ‐3% ‐3% 5%
nm 12% 12%
unit: Btmn
Core profit Tax credit Forex gain (loss) NP EPS (Bt) 2017E SOTP‐based TP (Bt)
8,070 1,449 290 9,809 0.48
Source: KT ZMICO Research Figure 5: China’s propylene supply additions
Figure 6: Figure 5: IRPC’s PBV Band
Source: IRPC
Source: Bloomberg, KT ZMICO Research
Figure 7: IRPC’s valuation comparison with regional peers NAME
Mkt Cap (US$Mn)
PER (x) 16E 17E
PBV (x) 16E 17E
EV/EBITDA (x) 16E 17E
YLD (%) 16E 17E
ROE (%) 16E 17E
PETRONAS CHEMICALS GROUP BHD FORMOSA PETROCHEMICAL CORP FORMOSA PLASTICS CORP NAN YA PLASTICS CORP TAIWAN IRPC PCL PTT GLOBAL CHEMICAL PCL SIAM CEMENT PCL/THE INDORAMA VENTURES PCL THAI OIL PCL THAILAND HANWHA CHEMICAL CORP SAMSUNG SDI CO LTD LG CHEM LTD LOTTE CHEMICAL CORP S. KOREA AVERAGE
12,912.5 32,334.1 18,300.3 18,578.4 3,131.6 8,727.8 16,891.8 4,952.8 4,139.6 3,880.4 6,488.0 15,924.5 11,274.6
20.6 16.7 17.1 16.4 17.7 11.2 12.6 11.6 15.6 7.7 11.4 5.9 20.7 13.7 7.7 12.0 13.7
2.2 3.5 1.9 1.7 2.3 1.4 1.3 2.4 2.0 1.4 1.7 0.9 0.7 1.3 3.7 1.7 1.9
10.4 11.2 27.8 18.9 17.1 8.0 7.1 9.5 10.6 5.8 8.0 6.5 7.4 5.8 4.8 6.2 10.4
2.4 4.6 4.2 4.3 3.9 4.4 4.4 3.7 2.2 5.8 4.1 1.0 0.9 1.8 0.7 1.1 3.0
10.6 21.0 11.2 10.3 13.3 12.5 10.3 22.4 15.1 19.2 16.3 15.4 3.2 9.9 20.5 12.3 13.9
18.1 17.6 16.0 17.6 17.3 12.1 10.6 11.5 17.7 9.8 11.7 6.6 12.8 11.5 7.3 9.5 12.9
2.1 3.3 1.8 1.7 2.2 1.3 1.2 2.2 1.9 1.3 1.6 0.8 0.7 1.3 3.4 1.5 1.8
9.2 11.9 23.3 16.6 15.3 7.8 6.1 9.3 9.6 6.3 7.5 6.9 5.5 5.3 4.6 5.6 9.5
2.8 4.2 4.4 4.0 3.8 4.1 4.7 3.8 1.9 4.6 4.0 0.9 1.0 1.8 0.8 1.1 3.0
Source: Bloomberg, KT ZMICO Research REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
11.1 18.4 11.5 9.4 12.6 11.0 11.4 20.0 11.1 13.8 14.2 12.4 5.2 11.1 18.5 11.8 12.9
Financial tables PROFIT & LOSS (Btm) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Forex gain (loss) Extra Items Gain (loss) from affiliates Minority interests Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btm) Cash and equivalents Accounts receivable Inventories PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Paid‐up shares Shareholder equity Minority interests Total liab. & shareholder equity CASH FLOW (Btm) Net income Forex and other extraordinary adjustments Depreciation & amortization Change in working capital Cash flow from operations Capex (Invest)/Divest Others Cash flow from investing Debt financing (repayment) Equity financing Dividend payment Others Cash flow from financing Net change in cash Free cash flow FCF per share (Bt) PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2013 292,593 (287,695) 4,897 (5,494) 4,093 4,691 (597) (1,560) 2,390 233 (7) (762) 1,424 (39) (23) 826 0.04 0.04 164 0.01 0.10
2014 281,589 (287,930) (6,341) (5,444) (6,826) 4,959 (11,785) (1,424) 2,411 (10,798) 2,398 932 2,393 (139) (21) (5,235) (0.26) (0.26) (8,560) (0.42) 0.08
2015 214,172 (197,913) 16,258 (6,172) 15,285 5,199 10,086 (1,192) (702) 8,192 (2,346) (393) 4,154 (184) (21) 9,402 0.46 0.46 5,641 0.28 0.22
2016E 185,484 (164,948) 20,535 (6,521) 19,947 5,932 14,015 (1,404) (2,442) 10,168 (667) 289 1 43 (25) 9,809 0.48 0.48 8,070 0.39 0.24
2017E 198,588 (179,809) 18,779 (6,289) 19,591 7,101 12,490 (1,851) 560 11,200 (2,240) 128 0 50 (20) 9,118 0.45 0.45 8,990 0.44 0.22
2018E 236,631 (214,415) 22,217 (7,526) 21,877 7,186 14,691 (1,693) 360 13,358 (2,672) 0 0 50 (50) 10,686 0.52 0.52 10,686 0.52 0.26
2013 5,124 20,767 34,798 84,428 17,490 162,608 10,575 36,138 87,081 20,434 75,458 68 162,608
2014 2,009 11,192 25,344 102,120 22,134 162,798 18,641 46,498 94,894 20,434 67,834 70 162,798
2015 3,576 8,942 21,306 115,997 13,352 163,174 7,201 49,235 87,296 20,434 75,804 74 163,174
2016E 3,397 10,163 20,336 113,231 12,436 159,563 15,557 37,777 78,536 20,434 80,929 98 159,563
2017E 6,990 10,882 22,168 108,636 12,271 160,946 27,420 21,291 75,513 20,434 85,315 118 160,946
2018E 3,066 12,966 26,435 104,105 12,159 158,731 26,402 10,254 67,512 20,434 91,051 168 158,731
2013 826 762 4,691 10,188 16,466 (14,335)
2014 (5,235) (932) 4,959 7,770 6,562 (22,427)
2015 9,402 393 5,199 9,965 24,959 (19,468)
2016E 9,809 (289) 5,932 (5,350) 10,102 (3,278)
2017E 9,118 (128) 7,101 (879) 15,211 (2,630)
2018E 10,686 0 7,186 (2,331) 15,541 (2,792)
(14,335) (2,000) (9) (1,839) 317 (3,532) (1,400) 2,132 0.10
(22,427) 18,427 (710) (1,839) (3,129) 12,749 (3,116) (15,864) (0.78)
(19,468) (8,703) 1,429 (3,065) 6,416 (3,924) 1,567 5,491 0.27
(3,278) (3,102) 34 (4,700) 764 (7,003) (179) 6,825 0.33
(2,630) (4,624) 30 (4,732) 337 (8,989) 3,593 12,581 0.62
(2,792) (12,055) (0) (4,951) 333 (16,673) (3,924) 12,750 0.62
2013 0.1 100.6 nm 1.7 1.4 (0.2) 0.3 0.1 3.0
2014 (3.8) (266.8) nm (2.3) (2.4) (4.2) (1.9) (3.0) 22.2
2015 (23.9) (323.9) nm 7.6 7.1 4.7 4.4 2.6 28.6
2016E (13.4) 30.5 4.3 11.1 10.8 7.6 5.3 4.4 6.6
2017E 7.1 (1.8) (7.0) 9.5 9.9 6.3 4.6 4.5 20.0
2018E 19.2 11.7 17.2 9.4 9.2 6.2 4.5 4.5 20.0
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, M‐CHAI, CRANE. KT ZMICO is a co underwriter of RPH.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market UNDERWEIGHT: The industry, as defined by the analyst's returns over a six‐month period due to specific coverage universe, is expected to underperform the relevant catalysts primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 10% or more over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
KT ZMICO Securities Company Limited Head Office
WWW.KTZMICO.COM
8th, 15th‐17th,19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok, Thailand 10500 Telephone: (66‐2) 695‐5000 Fax: (66‐2) 695‐5173 KT ZMICO Connect 662 695 5555
Central World Branch
Amarin Branch
22nd Floor, Amarin Building, 496‐502 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 018‐6200 Fax: (66‐2) 018‐6298, (66‐2) 018‐6299
8th Floor, Ton Son Tower, 900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 626‐6000 Fax: (66‐2) 626‐6111
Phaholyothin Branch
Sindhorn Branch
Viphavadee Branch
2nd Floor, Sindhorn Tower 1, 130‐132 Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 627‐3550 Fax: (66‐2) 627‐3582, 627‐3600
G Floor, Lao Peng Nguan 1 Bldg., 333 Soi Cheypuand, Viphavadee‐Rangsit Road, Ladyao, Jatujak, Bangkok 10900 Telephone: (66‐2) 013‐8600 Fax: (66‐2) 618‐8569
BangKhae Branch
Chiang Mai Branch
Pak Chong Branch
999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan, Bangkok 10330 Telephone: (66‐2) 264‐5888 Fax: (66‐2) 264 5899
1291/1, Shinnawatra Tower II, 3rd Floor, Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66‐2) 686‐1500 Fax: (66‐2) 686‐1666
Ploenchit Branch
518 The Mall Group Building Bangkhae Branch, 6th Floor, Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Telephone: (66‐2) 454‐9979 Fax: (66‐2) 454‐9970
422/49 Changklan Road, Changklan Subdistrict, Amphoe Meuang, Chiang Mai 50100 Telephone: (053) 270‐072 Fax: (053) 272‐618
173 175, Mittapap Road, Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Telephone: (044) 279‐511 Fax: (044) 279‐574
Korat Branch
Khon Kaen Branch
Chonburi Branch
624/9 Changphuek Road, T.Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171
5th Floor, Charoen Thani Princess Hotel, 260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000 Telephone: (043) 389‐171‐193 Fax: (043) 389‐209
4th Floor, Forum Plaza Bldg., 870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287‐635 Fax: (038) 287‐637
Pattaya Branch
Chachoengsao Branch
Hat Yai Branch
Easy Point 2, 392/65 Moo.9, T.Nong Prue, A. Bang Lamung, Chonburi 20260 Telephone: (038) 420‐965 Fax: (038) 420‐968
108/34‐36 Mahajakkrapad Road, T.Namuang, A.Muang, Chachoengsao 24000 Telephone: (038) 813‐088 Fax: (038) 813‐099
200/301, 200/303 JULDIS HATYAI PLAZA Floor 3 , Niphat‐Uthit 3 Rd, Hatyai Songkhla 90110 Telephone: (074) 355530‐3 Fax: (074) 355534
Phuket Branch
22/61‐63, Luang Por Wat Chalong Road, Talat Yai, Mueang Phuket, Phuket 83000 Telephone: (076) 222‐811, (076) 222‐683 Fax: (076) 222‐861
Phitsanulok Branch
227/171 Borom Trilokkanat Road, Muang, Phitsanulok 65000 Telephone: 055‐219‐255 to 8 Fax: 055‐219‐259
Nakhon Pathom
Cyber Branch Ayutthaya
Cyber Branch @ North Nana
Cyber Branch Chiangrai
KrungThai Bank, Rojana Branch 253 Moo 5, Rojana Road, Phai Ling, Phra Nakhon Si Ayutthaya, Phra Nakhonsi Ayutthaya, 13000 Telephone: 035‐242‐477 Fax: 035‐242‐476
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd., Klong Toey Nua Subdistrict , Wattana District , Bangkok 10110 Telephone: 083‐490‐2871
River Hotel (Building 3rd),1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
KrungThai Bank, Hayaek Phokhun Mengrai Branch 116/19 Moo 19, Highway 110 Road, Rop Wiang, Mueang Chiang Rai, Chiang Rai, 57000 Telephone: 053‐715‐067 Fax: 053‐715‐068
