Indorama Ventures

Indorama Ventures Plc (IVL)

- Sales volume and PTA spread to rebound in 2014
At the Opportunity Day meeting, IVL announced its two strategies to
promote growth in 2014: 1) IVL aims to boost its production by
12.1%yoy to 6.5 million ton. EO/EG factory in the US (550,000 ton/year
capacity) has resumed its production at its full capacity after renewing
the catalyst in 2Q13 and the polyester fiber factory in Indonesia
(200,000 ton/year capacity) has started its commercial run. 2) PTA
spread is projected to increase as Px (raw material) price has dropped
as a result of massive new supply in 2014. Also, MEG spread is likely to
rise as ethylene (raw material) cost has declined (the US has replaced
ethylene with shale gas as raw material). PET and HVA (IVL's main
products) spreads are likely to stay high. For long-term strategy, IVL
plans to acquire more PET and fiber factories, currently negotiating for
acquisition of PET factories in the Middle East and North Africa (430,000
ton/year capacity), aiming to be the world's largest PET producer.
Moreover, IVL plans to expand its investment on HVA business to raise
its value and increase the production capacity of feed stock (Px and Bz
for upstream products; PTA and MEG for intermediate products) to
reduce risk from fluctuating raw material cost.
- Revise down earnings forecast. Preliminarily expect sales volume too high
We revise down IVL's FY2014 net profit forecast by 23%, as IVL's sales
volume target (6.5 million ton) is lower than our forecast (7.6 million
ton). Still, IVL's FY2014 net profit is projected to leap by 188.4%yoy.
1Q14 net profit is expected to improve from 4Q13 due to these factors:
1) PTA spread has grown by US$10/ton (YTD), from the average in
December to US$85/ton, while PET and MEG spreads would stay
unchanged qoq. 2) PTA sales volume is expected to rise after PTA
factory in Europe resumed its production. 3) PET sales volume is
projected to grow, as the polyester fiber factory in Indonesia has started
its commercial run in January 2014.
- Turnaround stock. To rebound in 2014
Under the new forecast, we revise down end-2014 fair value from B25 to
B23.1 (DCF). We reiterate to hold or speculate for a short term, as 1Q14
net profit would rebound significantly. IVL's 2H13 dividend is
B0.14/share (0.7% semiannual dividend yield).