Indorama Ventures
M&A deals pay off, boosting profit to new hight BUY
Indorama Ventures
- Raising sales volume and profit margin for better growth
No new issue was made at the analyst meeting yesterday. IVL has been focusing on its plan to raise its production capacity from 6.4 million tons in the recent 12 months to 10 million tons within 2018, 70% through M&A deals and another 30% through two Brown-field projects. IVL has also been working on increasing the proportion of higher-margin high value added (HVA) production from 20% to 34% and reducing lower-margin PET production in Asia from 18% to 12% in order to boost overall EBITDA margin from the current level of 7% to 10%.
- Good growth expected in 2Q15 from sales and spread
IVL posted 1Q15 net profit of B249m, reviving from B953m net loss in 4Q14 (slightly better than expected). We maintain our FY2015 earnings forecast, projecting net profit to double from 2014 to B4.5bn in 2015 although 1Q15 profit accounted for only 5.5% of our forecast. Already recognizing B1bn stock gain since the beginning of 2Q15, stock gain is expected from 2Q15 on. Normalized profit is also projected to improve in 2Q15 as sales volume would rise to 1.7 million tons and petrochemical spreads are anticipated to widen. IVL's normalized profit would continue to rebound in 2H15 as sales volume grows.
- Strongest petrochemical growth stock
FY2015 fair value (DCF, 11% WACC) is B32. Dividend yield is not attractively high, but its profit is likely to make new highs in the next two or three years.
