IRPC (IRPC TB): 3Q24 – In The Red Again

IRPC’s performance in the third quarter of 2024 has once again shown troubling signs, as the company booked a significant net loss of Bt4.9 billion, which was in line with market expectations. Excluding a massive inventory loss of Bt5.0 billion, IRPC would have posted a core loss of Bt1.4 billion. The total core loss for the first nine months of 2024 amounted to Bt3.2 billion, a stark contrast to the Bt110 million loss in the same period last year.

Operating Numbers Remained Weak

Despite maintaining a healthy utilization rate of 92% (198kbd) in 3Q24, the company’s market gross integrated margin (GIM) remained below breakeven, reported at US\$5.7/bbl against a breakeven cost of US\$10.0/bbl. The weak GIM was primarily due to a softer gasoline spread at US\$11.1/bbl (compared to US\$13.1/bbl in 2Q24 and US\$18.9/bbl in 3Q23). Additionally, the polypropylene (PP) spread, which comprises 40% of IRPC’s production volume, remained below breakeven at US\$354/tonne in 3Q24 (vs. US\$377/tonne in 2Q24), impacted by new supply and weaker demand from China.

Rising Expenses

IRPC’s management noted that SG&A expenses rose by 11% year-on-year and 1% quarter-on-quarter to Bt3.8 billion, driven by additional costs from the early retirement programme. Interest expenses increased by 28% year-on-year and 12% quarter-on-quarter to Bt689 million in 3Q24 due to higher borrowing costs.

Financial Projections

Looking ahead, IRPC’s core performance is expected to recover slowly in 4Q24. The company’s GIM is estimated to improve, driven by higher diesel and fuel oil spreads during the winter season. Additionally, IRPC is expected to benefit from higher crude oil prices, which should lead to positive inventory gains.

Financial Metrics

For the fiscal year ending 31 December, IRPC’s key financial metrics are as follows:

• Net turnover: 334,064 (2024F), 339,084 (2025F), 344,001 (2026F)
• EBITDA: 6,373 (2024F), 15,281 (2025F), 16,092 (2026F)
• Operating profit: (2,427) (2024F), 6,481 (2025F), 7,292 (2026F)
• Net profit (adj.): (4,022) (2024F), 3,370 (2025F), 3,948 (2026F)
• EPS (Bt): (0.3) (2024F), 0.2 (2025F), 0.2 (2026F)

Valuation and Recommendation

Despite the challenging financials, IRPC’s share price has consolidated by 36% year-to-date and is currently trading at a historical low of 0.36x 2024F P/B. UOB Kay Hian maintains a BUY recommendation with a lower target price of Bt1.70, reflecting a roll-over to 2025 valuation at 0.5x 2025F P/B, -1SD to regional peers’ five-year historical mean.

Environmental, Social, and Governance (ESG)

IRPC is committed to reducing GHG emissions by 20% by 2030. The company has established CSR strategies that require investments in CSR projects equal to 3% of the average net profit from the past three years, focusing on community, educational, and social development projects. Additionally, IRPC is committed to good governance practices to provide the utmost benefit to shareholders and stakeholders.

I-TAIL Corporation (ITC TB): 3Q24 – Earnings In Line

I-Tail Corporation (ITC) reported net profit for 3Q24 of Bt976 million, up 52% year-on-year, but down 2.9% quarter-on-quarter. Excluding one-off forex losses, 3Q24 core profit came in at Bt1,029 million, up 58% year-on-year, but down 3.3% quarter-on-quarter, aligning with both UOB Kay Hian’s and consensus estimates.

Top-Line and Gross Margin Improvements

The impressive year-on-year earnings growth was driven by both higher top-line revenue and gross margin improvements. 3Q24 top-line grew by 11% year-on-year, driven by demand from US and EU customers. The gross margin improved to 29.8% in 3Q24 from 19.2% in 3Q23, supported by better premium product contribution, inventory provision reversal (which contributed around 1.8% to the gross margin improvement), and lower raw material costs.

Slight Quarter-on-Quarter Decline

However, the quarter-on-quarter earnings declined due to lower sales and higher SG&A-to-sales ratio, driven by business consulting fees.

Financial Projections

ITC’s key financial metrics for the fiscal year ending 31 December are as follows:

• Net turnover: 18,563 (2024F), 19,955 (2025F), 20,953 (2026F)
• EBITDA: 5,200 (2024F), 5,753 (2025F), 6,164 (2026F)
• Operating profit: 4,411 (2024F), 4,778 (2025F), 5,049 (2026F)
• Net profit (adj.): 4,181 (2024F), 4,527 (2025F), 4,782 (2026F)
• EPS (Bt): 1.4 (2024F), 1.5 (2025F), 1.6 (2026F)

Valuation and Recommendation

UOB Kay Hian maintains a BUY recommendation for ITC with a target price of Bt28.00, pegged to 18.8x 2025F PE, based on the average PE of ITC’s OEM pet food producer peers in Thailand and China. The stock is currently trading at an undemanding valuation of 15.6x 2025F PE.

Environmental, Social, and Governance (ESG)

ITC’s ESG initiatives are robust, with a SeaChange sustainability strategy aimed at becoming a net-zero emission company by 2030. The company plans to increase biomass fuel usage to 70% of its steam production, expand solar panel contribution to 4.8 MW, and reduce GHG emissions by 42% by 2030 from the 2021 baseline. ITC also aims to increase its OEM sales using sustainable packaging to 60% by 2030. ITC’s governance policies include anti-corruption, respect for human rights, fair treatment of labor, and responsibility to customers and consumers.