Indorama Ventures

Indorama Ventures Plc (IVL)

 

- Buying ethylene cracker in US  

On September 23, IVL signed a contract to acquire 76% stake in an ethylene cracker, which is located in Lake Charles, Louisiana, the US, from Occidental Chemical Corporation or Oxychem (the rest 24% belongs to Mr.Sri Prakash Lohia’s group, which is an expert in an olefins business). This project, called The Lake Charles Cracker, will use ethane and propane from U.S. shale gas in production of ethylene and propylene at an annual capacity of 370,000 tons and 30,000 tons, respectively; a commercial run is anticipated at the end of 2017. The acquisition value has not yet been revealed but according to IVL, 50% of the acquisition budget would come from its internal cash flow and the other 50% from borrowings, which will not affect the company’s financial status. 

- One of roadmaps to add business value  

Acquisition of the ethylene cracker is one of the plans in Project Houston of IVL. We are positive about this deal since it will help IVL become an integrated PET producer in North America. At present, IVL is running only intermediate business (PTA, MEG) and downstream business (PET) in such region with an annual production capacity of 600,000 tons, 550,000 tons, and 1.5 million tons, respectively, which accounts for 25.4%, 100%, and 37.5% of its total PTA, MEG, and PET production capacity. Expanding its coverage to an upstream business will help increase its competitiveness in the long run. Ethylene spreads in the US in the past three years stood at almost US$1,000/ton on average, which is US$100-150/ton higher than Asian counterparts. We are reviewing our forecast. 

- Top pick of petrochemical sector  

2015 fair value, DCF, is B33. We reiterate BUY. IVL’s profit would make a new high in the next few years.