IVL

IVL Plc

PTA business and stock loss to depress 4Q13 profit
We estimate 4Q13 net profit at B499m, falling 54.2%qoq due to the
following reasons. 1) Total product sales would decrease 3.5%qoq to
1.42 million tons on seasonal effect (winter in Europe and the US). At
the same time, PET demand usually decreases during a year-end long
holiday. Moreover, there was a one-month unplanned shutdown of a PTA
factory in Europe due to a technical problem. 2) PTA spread has
contracted 36.3%qoq to US$72/ton because a commercial production of
new Px supply (raw material) has been postponed from 4Q13, while PET
and MEG spreads have stayed quite flat from the prior quarter. 3) There
would be an inventory loss of around B400m, versus an inventory gain
of B252m in 3Q13, thus EBITDA would decrease 6.3%qoq to US$75/ton
in 4Q13. However, there would be an extraordinary income of around
B250m net to sustain the overall profit (insurance claims of B470m, Fx
gain of B95m, and debt restructuring expense of around B315m).
Overall, FY2013 net profit is projected at B2.3bn, dropping 50.3%yoy,
14.1% worse than previously forecast.

-Sales volume and spread to rebound in 2014 along with global economy
We project 1Q14 profit to increase from 4Q13 from contributions as
follows. 1) PTA spread since the beginning of 2014 until present has
widened by US$10/ton on average, from US$85/ton in December 2013,
consistent with a gradual commercial production of new Px supply, while
PET and MEG spreads would remain near that of the previous quarter. 2)
PTA sales volume would improve after the PTA factory in Europe can
resume its operation. 3) PET sales volume would increase after a
polyester fiber factory in Indonesia has started a commercial run in
January 2014. For FY2014, the business tends to prosper from PTA
spread in Asia that is anticipated to revive gradually after many small
factories have closed due to a problem of high production cost.
Additionally, increasing Px supply would help decrease IVL’s raw
material cost from 2013. Furthermore, sales volume is anticipated to
grow 12.2%yoy to 6.4 million tons since a MEG factory could resume its
full operation after a two-month shutdown in 2013. There would also be
additional capacity from the polyester fiber factory in Indonesia that
produces 200,000 tons of PET a year and 100,000 tons from extensions
of factories in Poland and China. Consequently, FY2014 net profit would
leap significantly by 112%yoy.

- Hold. 2014 PER is very high. Switch to PTTGC
2014 fair value (DCF; WACC of 13.6%) is B25. We reiterate to hold IVL.
Although the share price has absorbed a negative factor from the weak
earnings in 2013, its 2014 PER is as high as 20.7x, which is above the
regional average of 12-13x. We recommend switching to
PTTGC([email protected]).