Indorama Ventures

Indorama Ventures Plc (IVL)

We recommend more than just short-term speculation on IVL's warrants. In
order to invest for backward integration, IVL has an efficient capital increase
method that does not affect shareholders and help get rid of a downside of
IVL's share price.

- Issue warrants to increase capital by B33bn
IVL has approved the issuance and allocation of two series of the warrants,
IVL-W1 and IVL-W2 warrants, to purchase the newly issued ordinary
shares. The term of IVL-W1 Warrants is three years and the exercise price
is B36/share while the term of IVL-W2 Warrants is four years and the
exercise price is B43/share. IVL aims to increase capital by B33bn to invest
on a joint venture (IVL holding 50% stake) for an ethylene cracker (raw
material for MEG production) with the capacity of 1.5 million tons/year and
a MEG plant (MEG and PTA are intermediate materials for PET production)
with the capacity of 750,000 tons/year in the US. The investment value is
estimated around US$3.4bn or over B100bn; the project will start the
commercial run in 2019. IVL is likely to expand its investment and add the
value via M&A deal. HVA business has made up 27% of its total income.
- Initial investment for shale gas source
We have a positive outlook on the issuance of warrants. With this capital
increase method, dilution effect would be lower, loan is not necessary, and
D/E ratio (including warrants) would be as low as 0.15x. Thus, IVL would
need no further capital increase for the investment on ethylene and Px
upstream productions that would make IVL an integrated PET producer with
the largest market share of 15% in worldwide PET business.
- Revise up FY2015 fair value to B40
We reiterate BUY. Current share price grants the total return of 41%. We
revise up IVL's FY2015 fair value (DCF) from B30 to B40to reflect better
long-term growth rate (increased from 1% to 4%).