Vinythai

Vinythai Plc (VNT)

Above expectations
The firm reported a strong 3Q12 net profit of Bt598m, down by 27% YoY but up 14% QoQ. Stripping out a Bt21m loss on the disposal of equipment, 3Q12 core profit would be Bt619m, down by 25% YoY but up 19% QoQ. The result was 16% above our forecast and the consensus, due to higher-than-expected sales volume and better product spreads than assumed.

Results highlights
Revenue growth was driven by: 1) greater sales volume, both YoY and QoQ (no plant shutdowns during the quarter), and 2) income recognition from VNT’s Epichlorohydrine (ECH) project. However, the PVC sales price fell by 16% YoY and 11% QoQ to US$917/t. Slimmer product spreads constituted the main cause of the YoY core profit contraction. The 3Q12 PVC-0.5Ethylene spread plunged by 39% YoY (and 28% QoQ) to $317/t, while the full product spread (PVC spread plus caustic soda margin) is assumed to have dived by 18% YoY and 16% QoQ to $652/t. The driver of the QoQ core earnings growth was greater sales volume.

Outlook
The price and spread of PVC are both expected to soften in 4Q12, due to low seasonal demand and greater regional supply availability with the end of maintenance shutdown season. We, therefore, expect VNT’s 4Q12 earnings to slip QoQ.

What’s changed?
Even though the 9M12 net profit of Bt1,632m represents 79% of our FY12 forecast, we maintain it unchanged, as we expect 4Q12 numbers to soften QoQ for the reasons noted above.

Recommendation
In our view, the unfavorable chemical spread outlook brought about by the prevailing global economic uncertainty will cap the share price performance in the near-term. However, VNT’s strong 3Q12 earnings should support its stock price. Moreover, if there were signs of a recovery in the global economy—China in particular—we would expect spreads to rally and the share to re-rate. Also, the Epichlorohydrine plant, which started operating early this year, could mean scope for upside to our earnings forecast. VNT currently trades at an FY13 PER of 11.2x and a YE13 PBV of 1.1x—discounts to the regional means of 13.2x and 1.8x.