Indorama Ventures

Indorama Ventures Plc (IVL)
Investment thesis: The key messages from the analyst meeting yesterday reaffirmed our view of the firm’s earnings outlook. We think core profit bottomed out in 1Q12; anticipation of an ongoing core earnings improvement throughout this year will catalyze the share price going forward. In addition, we remain positive about IVL’s long-term growth profile, led by further expansion and/or acquisitions.
Earnings growth to sustain momentum through YE12, driven by greater sales volume and … Sales volume will increase QoQ through to 4Q12, augmented by the commercial start-up of a new PET plant in Nigeria, the resumption of operations at the Lopburi facilities, the launch of a PTA factory in Indonesia, the consolidation of Old World Industries in 2Q12, followed in 3Q12 by PET expansion in the Netherlands and a full operational year for assets acquired in FY11. We expect sales volume to jump 20% HoH in 2H12.
…fatter product spreads: PET resin is leading the recovery—the effects of high seasonal demand and inventory replenishing are kicking in. However, the Asian PTA spread is expected to remain close to the current level of $120-130/tonne, due to supply pressure. Nonetheless, the consolidation of Old World Industries (an MEG facility in the US) should contribute to fatter overall margin, as MEG spread is forecast to expand this year, driven by a tighter demand-supply balance. Note also that the North American MEG spread has averaged about $86/tonne fatter than the Asian MEG during the past five years.
We also expect an insurance payout totaling Bt2.3bn to be booked from 2Q12 onward for flooding at the Lopburi complex in 4Q11.
Efficiency enhancements & organic expansion to be key focuses in the near-term: Apart from the scope for margin expansion with the acquisitions of specialty businesses in recent years, IVL will focus on consolidating these operations with the aim of improving their efficiency and cutting costs. The firm will also pursue greenfield expansions (which would be expected to start up in FY16-17 if they were to go ahead). Nonetheless, the firm would also grab any good acquisition opportunities that might arise.