Indorama Ventures

Indorama Ventures Plc (IVL)

We estimate IVL’s earnings in Q2 2012 and 2H12 will rebound and beat consensus’s low expectations, thanks to strong EG/EO contributions from US.
Earnings growth should stay on track and we believe IVL’s earnings resilience is being overlooked by the market. We believe Q2 2012’s net profit, which we
expect to be THB1.8bn despite large inventory losses, will surprise the market. IVL’s well-diversified earnings portfolio and timely acquisitions should help
sustain its growth in 2012-13. Maintain Outperform and target price of THB39, based on 7x EV/EBITDA, on par with the regional peer average. 

Market underestimating Q2 2012 earnings
We believe IVL will post Q2 2012 earnings of THB1.8bn, up 6% qoq, but down 24% yoy, when it announces its results on 14 Aug. The net profit is
expected to beat consensus’s projection of THB1.3bn on the back of better-than-expected earnings from Old World, 27% qoq higher volume
and insurance claims, which should offset inventory losses of THB1.6bn.

Strong rebound in 2H12
We expect earnings to rebound sharply in 2H12, thanks to 1) higher volume of 1.5mtpa due to improved utilisation and the full integration of
acquired assets, 2) improved margins for PET and PTA given industry rationalisation, and 3) strong earnings contribution from its Old
World EG/EO business in the US.

Key driver: acquired assets
We expect earnings post 1H12 to surge 197% hoh and 40% yoy, catalysed by contributions from multiple assets acquired by IVL over
the past 12 months. IVL has a strong proven track record of a short payback period of three-and-a-half years for its three major acquisitions.
We believe IVL, with its strong set of capabilities, will soon turn around its acquired assets, which in total are worth US$1.9bn and represent a 71%
rise in capacity.

Rock-bottom valuation
IVL is trading at its historical rock-bottom of 2x P/BV and 10x P/E as PTA margins remain in the trough. However, we believe valuations
will rise given 1) stronger growth momentum in 2H12 and 2013, and 2) a change in earnings portfolio from EG/EO and expansion into
downstream PET and polyester.