Vinythai

Vinythai Plc (VNT)
 

Above expectations: VNT posted a 1Q12 net profit of Bt509m, up by 172% YoY and 162% QoQ. Stripping out an FX gain of Bt21m, core earnings would be Bt488m, up by 125% YoY and 153% QoQ. The result was slightly higher than our estimate, due to better-than-expected spreads.
Results highlights: The YoY and QoQ revenue growth was due mainly to greater sales volume—there weren’t any maintenance shutdowns during the quarter, while VNT recognized sales from its Epichlorohydrine (ECH) project (which started up commercially in late Feb 2012). Also, the PVC sales price rose 4% QoQ (down 7% YoY) to US$954/t. Note that the 1Q12 PVC-0.5Ethylene spread dropped by 19% YoY and 16% QoQ to $329/t.
Outlook: The price and spread of PVC should both be sustained strong in 2Q12, driven by high seasonal demand across the region. We, therefore, anticipate robust 2Q12 earnings. As the PVC-0.5Ethylene spread has weakened 34% YoY but remained flat QoQ at $378/t, we expect VNT’s earnings to be stable QoQ but softer YoY (because of capacity losses in Japan as a result of the March 11, 2011 tsunami, the PVC-0.5Ethylene spread was exceptionally high in 2Q11).
What’s changed? 1Q12 net profit represents 25% of our FY12 forecast of Bt2,068m, which we maintain unchanged.  
Recommendation: Strong 1Q12 earnings together with expectations of another good quarter in 2Q12 should act as a share price catalyst going forward. Further ahead, the dynamics of the chemical market should improve later this year, in which case we would expect a valuation re-rating. Moreover, a new project—the Epichlorohydrine plant—which recently started operating—could mean scope for upside to our earnings forecast.
VNT currently trades at an FY12 PER of 10.3x and a YE12 PBV of 1.2x—discounts to the regional means of 11.8x and 2.0x. We, therefore, maintain our BUY rating with a YE12 target price of Bt21.50.