Net loss of Bt4.9bn was in line with INVX but worse than market estimates, sunk by a huge stock loss of Bt5bn (US$7.83/bbl), including net realizable value of inventory, and poor market GIM of US$5.72/bbl vs. unit cost of nearly US$10/bbl. Earnings are expected to recover in 4Q24 on stronger market GRM and lower impact from stock loss than in 3Q24. Net loss of Bt4.1bn in 9M24 disappointed and we cut our 2024F to a net loss of Bt3.4bn from net profit of Bt1.3bn. We believe the weak earnings have been largely priced in given the 10% drop in share price over the past month against the SET’s gain of 1%. We maintain Neutral with a TP (end-2025) of Bt1.70/share, based on 0.5x PBV (2025F), -1.5SD. At this TP, the stock will be trading at 7.5x EV/EBITDA vs. regional average of 8.6x.
IRPC - 3Q24: Weak, met expectations
Crude intake down QoQ on a poor market in 3Q24. IRPC’s crude intake fell 2% QoQ to 198kbd (92% utilization), reflecting the poor market for both petroleum and petrochemical products. It had a high RDCC unit utilization rate at 108%, up from 81% in 2Q24 when there was an 18-day planned turnaround. Good product spread led IRPC to maximize the lube base oil utilization rate in 3Q24 at 91%.
Market GIM up QoQ on higher petrochemical product-to-feed margin. IRPC’s market GIM grew 12% QoQ (though fell 36% YoY) to US$5.72/bbl on a 17% QoQ rise in petrochemical product-to-feed margin despite lower product spread. This reflects some premium on its products above commodity-grade products, mainly olefins (61% of total sales volume of the segment). Market GRM also improved 7% QoQ, driven by the lube base oil business while crack spread of other refined oil products fell 28% QoQ. Market GIM was totally wiped out by a stock loss of US$7.83/bbl (Bt5bn) from the downward trend of oil price in 3Q24 while operating cost remained high at US$10.7/bbl, up from US$9.8/bbl in 2Q24 due to severance payments.
4Q24 profit to recover on better GRM and lower stock loss. We expect core profit to improve QoQ in 4Q24 on a gradual recovery in GRM, driven by seasonal demand for middle distillates (56% of IRPC’s refined oil product yield). Petrochemical product spread, particularly for PP (56% of downstream petrochemical capacity) remains low with QTD PP-naphtha spread at only US$308/t vs. 5-year avg of US$470/t. We expect net profit to turn around in 4Q24 on a lower stock loss.
Cut our 2024F. The net loss of Bt4.1bn in 9M24 led us to slash our 2024F from a net profit of Bt1.3bn to a net loss of Bt3.4bn. We have cut our market GIM assumptions to line up with actual performance in 9M24 and the huge stock loss in 3Q24. We stay cautious on the petrochemical market and its high operating cost.
TP of Bt1.70 based on 0.5x PBV; NEUTRAL. We reaffirm our NEUTRAL rating as we believe the worst is behind us. We expect recovery in the petrochemical business will be gradual and will continue to drag earnings and share price, but the better outlook for oil refining margin will support 4Q24F and 2025F profit. At TP of Bt1.70, the stock would trade at 7.5x EV/EBITDA (2024F), below current level for regional peers at 8.6x.
Key risks to forecast and valuation are oil price volatility (bringing stock loss), lower GRM and spread for petrochemical products. Key ESG risk factors include the environmental impact of its business and adaptation to clean energy.