Indorama Ventures

Indorama Ventures Plc (IVL)  

 

- 2Q15 profit beats projection  

IVL posted 2Q15 net profit of B5.2bn, growing 21x from the prior quarter and substantially better than our projection, thanks to more-than-expected extraordinary profit from inventory gain of B1.4bn and bargain purchase of B3.2bn (before tax). Excluding the extraordinary items, normalized profit increased 16.9%qoq to B1.56bn. Sales increased 11.5%qoq and overall product spreads widened, so EBITDA remained high at US$96/ton. Overall, 1H15 net profit was B5.5bn, leaping 195.1%yoy and making up 86% of FY2015 forecast. 

- Normalized profit to stay flat, net profit to shrink in 2H15  

We maintain our FY2015 earnings forecast although 2H15 net profit would make up only 14% of the forecast, because there is still risk of inventory loss in 3Q15. However, normalized profit in FY2015 would still be in line with our forecast; 2H15 normalized profit would decrease from 1H15 and account for 48% of our full-year forecast since PET spreads in Asia and Europe in 3Q15 would weaken from 2Q15; yet, sales volume would increase, so EBITDA/ton would drop only slightly from 2Q15. The profit would grow again in 4Q15, which is a high season of the petrochemical business. Overall, IVL’s profit would increase more than fourfold yoy in 2015 and 19.1%yoy in 2016. 

- Top pick of petrochemical sector  

2015 fair value (DCF) is B33/share; we reiterate BUY. Interim dividend was announced at B0.24 (going XD on August 20) or a 1H15 yield of 0.9%, which is not so high, but IVL’s profit tends to make new highs in the next few years, which is attractive.