Vinythai

Vinythai Plc (VNT)

Below expectations: VNT posted 4Q11 net earnings of Bt194m, down 53% YoY and 76% QoQ. Stripping out an FX gain of Bt6m and a loss on the disposal of equipment of Bt5m, core profit would be Bt193m, down by 52% YoY and 77% QoQ. The results were somewhat below our estimate and the consensus, due to slimmer-than-expected spreads. VNT also reported an FY11 net profit of Bt1,989m, up 32% YoY.
Results highlights: The YoY and QoQ revenue contraction was due mainly to a weaker PVC sales price (down by 6% YoY and 16% QoQ to US$920/t), brought about by concerns over the global economic slowdown. Sales volume was sustained stable QoQ, as the plant ran at full capacity during the period. The 4Q11 PVC-0.5Ethylene spread weakened by 14% YoY and 25% QoQ to $390/t. Furthermore, we estimate that the price of caustic soda (a by-product) dropped 15% QoQ to $490/t.  As such, VNT’s full spread fell 21% QoQ to $720/t.
Outlook: We anticipate that the price and spread of PVC will rebound in 1Q12, driven by high seasonal demand in the domestic market and restocking flows across the region. We, therefore, anticipate that 1Q12 earnings will rise QoQ.
What’s changed? Our FY12 net profit forecast stands unchanged at Bt2,068m, up 4% YoY.  
Recommendation: The stock has already priced in the weak 4Q11 earnings. Expectations of profit growth in 1Q12 should act as a share price catalyst in the near-term. Looking further ahead, the good prospects for the chemical market later this year should support a valuation re-rating. Furthermore, a new project—the Epichlorohydrine plant—will commence operating commercially in 1Q12 and entails scope for upside to our bottom-line model.
The stock currently trades at an FY12 PER of 10.1x and a YE12 PBV of 1.2x—discounts to the regional means of 11.2x and 2.1x. We, therefore, maintain our BUY rating with a YE12 target price of Bt21.50.