Petrochemical and Refinery

Petrochemical and Refinery Plc

PTA spread makes one-year new high
During the recent week, PET spread (IVL) has been outstanding. PTA-Px spread
(making up 20% of IVL's total sales volume) has leapt by 47.8%wow to US$215/ton
(making the one-year new high) as Px raw material cost has declined by 8.3%wow
due to a significant new Px supply in 2014. Moreover, cotton price has risen to 92.12
cent/lb, making the two-year new high, thus signaling an increase in price of
alternative product like polyester fiber in near future. This is likely to benefit polyester
fiber producers like IVL, as its polyester fiber business makes up 20% of total sales
volume. At the same time, spreads of other products have declined. Olefins spread
(PTTGC, IRPC) has dropped as naphtha (raw material) price has risen by 1.0%wow
while overall product price stayed unchanged. For aromatics spread (TOP, PTTGC,
ESSO, IRPC), aside from pressure from an increase in naphtha price, Px and Bz
product prices have also declined by 8.3%wow and 3.4%wow, respectively. Thus, Px-
Naptha spread has dropped to US$210/ton, and Bz-Naptha spread has decreased to
US$287/ton.

-Sector's 1Q14 profit to rebound and grow
We project that the sector's 1Q14 would rebound and grow from 4Q13, as
petrochemical spread has been increasing, especially olefins spread, thus benefiting
PTTGC and IRPC. IVL's earnings result is expected to reverse to profit thanks to the
following factors: 1) PTA spread has been rising since the beginning of 2014.
Meanwhile, PET and MEG spreads have stayed close to 4Q13. 2) PTA sales volume is
likely to grow as the PTA factory in Europe has resumed working. 3) PET sales volume
is projected to rise after the polyester fiber factory in Indonesia has started its
commercial run in January 2014. Overall, IVL's FY2014 net profit is projected to leap
by 188.4%yoy.

- Speculate IVL
We recommend buying and speculating IVL([email protected]). Both PTA spread and cotton
price have made the new high, possibly benefiting IVL's earnings result. The sector's
top pick is PTTGC([email protected]).