Indorama Ventures

Indorama Ventures Plc (IVL)

Begins to harvest Synergy from M&A… cuts production cost,increases value-added products
According to the analyst meeting on 23 August 2012, IVL’s investment strategy from now on will decelerate the acquisitions and turn to enhance profitability and cost control in companies that have been taken over. After this adjustment is completed, the benefits from Synergy in the next 2 years will lead to US$50m/year. At the same time, the company still emphasizes on increasing sales of specialties (aims at 15% from the total production capacity in 2014 from the current 7%) by using new innovation from acquisition of polymer and synthetic fiber businesses which will boost IVL’s gross profit margin and reduce fluctuation of global commodity price. Overall, IVL aims to take profit from main operation (EBITDA) in 2014 that will rise to US$1bn (or B30,000m) or one time growth from 2011 (under the total production capacity at 8,000,000 tons/year). For the direction of growth in the next period (after 2014), the company will focus on expanding business
to mid-upstream products for both MEG and ethylene since IVL has kept an eye on area in North America which is advantageous for its high number of low cost shale gas resources (IVL will present further details once again in 1Q13). Likewise, for PX, the company has kept an eye on the area in the Middle East where there are abundant crude oil resources (IVL will present
further details once again in 4Q12). The abovementioned factors are all beneficial for IVL’s long-term growth of profit, since there’s no need to worry about the capital source with D/E at 1:1 which is in the company’s capability to handle while the credit is maintained at A+. In addition, CFO is projected to stand above the average level at over B20bn/year in 2-3 years ahead.

2H12 profit projected to recover from 1H12… production volume and spread rise

2H12 net profit tends to exceed one in 1H12 due to the following factors.

1) The total sales in 2H12 has risen by 18% from 1H12 due to gradual recognition of new production capacity (as shown on the next page) and higher production capacity of PET factory in Lopburi and others. 2) The spread of polyester has recovered continuously step by step due to constant pressuring factors from new production capacities on PTA spread in Asia while
MEG spread in North America that is continuously in an uptrend in 2H12. 3) Inventory in 2H12 is projected to bring about profit (B1bn of loss in 1H12)which can be seen from the tendency of most product selling prices that has increased along with the global crude oil price. PET has recently increased by 5.5% from end-2Q12 as well as the price of PTA that has recently recovered
slightly by 2.7% from end-2Q12. 4) The insurance compensation for the business interruption of a factory in Lopburi is still possible as it is projected to be recognized in 4Q12. Overall, we maintain IVL’s 2012-13 net profit forecast.

IVL’s share price back to outperform along with profit direction in uptrend

We recommend “BUY”. Fair value, using DCF, stands at B37. We’re convinced that IVL will be back to outperform the market with no difficulties due to the quarterly profit that has recovered constantly and the plan of significant expansion of business, boosting IVL profit in 5 years ahead. In terms of the fire accident in IVL’s factory in Map Ta Phut (PET’s production capacity at 91,000 tons/year and polyester fabric at 182,000 tons/year) yesterday, it was only for a short period of time and got under control quickly, so there’s nothing significant for our forecast.