Indorama Ventures

Indorama Ventures Plc (IVL)

- Focusing on PET and polyester fiber from now on
IVL revealed the plan to increase its PET production capacity for the
remainder of 2014 via acquisition. We expect IVL to invest in two or
three more projects within 2014 after acquiring PHP Fibers and SASA in
1Q14. IVL's PET production volume and sales would grow every year.
FY2014 production volume is projected to grow by 12.1%yoy to 6.5
million tons, in line with our forecast. Moreover, IVL has planned to
expand its investment on HVA business (27% of IVL's income) to raise
its value and increase the production volume of feed stock (Px and Bz
for upstream products; PTA and MEG for intermediate products) to
reduce risk from fluctuating raw material cost. Margin of PET, PTA, MEG
and HVA is expected to increase in 2014. Low Px (raw material) cost and
high product prices are likely to boost IVL's profit in 2014.
- Bt1.3-1.5bn/quarter normalized profit in 2Q14 - 4Q14
IVL's 1Q14 net profit was reported at B368.5m (better than expected),
reversing from B469m net loss in 4Q13. 1Q14 Core EBITDA increased
beyond expectation by 18.4%qoq to US$103/ton, boosting normalized
profit by 218.1%qoq to B1.5bn. However, IVL faced B1.1bn inventory
loss. Though 1Q14 net profit made up only 7.9% of FY2014 earnings
forecast, we expect that IVL has already passed its lowest in 1Q14. PET,
PTA and MEG prices currently have limited downside, likely to stay as
high as in 1Q14. Also, there would be no massive inventory loss like in
1Q14. 2Q14 - 4Q14 normalized profit is projected as high as B1.3-
1.5bn/quarter, thanks to averagely 4%qoq growth in production volume.
Overall, FY2014 net profit is anticipated to leap remarkably by
249.8%yoy.
- New fair value is Bt30
Owing to good news from the company, we revise up FY2014 fair value
(DCF, revising WACC up from 13% to 15%) from B26 to B30, implying
27% upside. We reiterate to buy.