Petrochemical and Refinery

Petrochemical and Refinery

PET and olefins spreads have widened again, benefiting both IVL
and PTTGC. Profit of the two companies would also outshine peers
in 2Q14. BUY is recommended

- PET and olefins spreads widen again
A spread of PET (IVL) has widened again in the past week, thanks to a
5.9%wow decrease in a price of Px (raw material) to US$1,400/ton from a
gradual increase of Px supply in 2H14. Likewise, a spread of olefins (PTTGC,
IRPC) also rebounded significantly last week because a price of raw material
Naphtha dropped 1.4%wow to US$976/ton while overall product price has
remained high.
-  IVL, PTTGC most remarkable in 2Q14
We project 2Q14 profit of the sector to stay flat from 1Q14 because of TOP
and IRPC. However, IVL and PTTGC’s profit growth would remarkably
outshine peers. For IVL, there would not be high stock loss like it was in
1Q14, so 2Q14 net profit would stand above B1bn again. Similarly for
PTTGC, the profit would grow by 10-20%qoq to B7-8bn in 2Q14 (under an
assumption for no extraordinary expense).
- Buy IVL and PTTGC
We recommend buying both IVL([email protected]) and PTTGC ([email protected]). IVL is
a turnaround stock in 2014 with potential profit growth in the next three to
five years. PTTGC’s share price has already declined to reflect some
negative factors and the current P/E ratio is only 9x, lower than the regional
average of 12-13x, with dividend yield of 5% p.a.