Indorama Ventures

Indorama Ventures Plc (IVL)

- 1Q14 earnings to rebound to profit
We project IVL's 1Q13 net profit at B112m (reversing from B469m net
loss in 4Q13); benefiting from B130m insurance claim for the last
quarter, but threatened by B1bn inventory loss as a result of low
product price. Excluding extraordinary items, 1Q14 normalized profit is
expected to leap significantly to B980m, thanks to the following positive
factors: 1) Spreads have been increasing. PET and PTA (50% and 30%
of IVL's sales volume, respectively) spreads have widened averagely by
18%qoq owing to low raw material (Px) cost. Meanwhile, MEG (15% of
IVL's sales volume) spread has weakened by 14%. 2) Sales volume is
expected to rise by 2.1%qoq to 1.49 million tons; PET sales volume has
grown strong thanks to high season (winter). 1Q14 core EBITDA is
projected to increase by 4.5%qoq to US$91/ton. Overall, 1Q14 net profit
is expected to make up 2.4% of FY2014 earnings forecast.
- 2Q14 profit to rebound to B1bn
We maintain our FY2014 earnings forecast. 1Q14 net profit made up
only 2.4% of our forecast because we have not included B1bn inventory
loss in our forecast. 1Q14 normalized profit is projected close to B1bn.
FY2014 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
(under the assumption that spread would widen further at the same rate
as 1Q14). PET, PTA and MEG prices are likely to have downside; most of
them have made the two-year lowest, and demand for PET and
polyester fiber has been increasing owing to global economic recovery.
2Q14-4Q14 inventory loss is not likely to be as high as 1Q14. Thus,
FY2014 net profit is still projected to leap by 249.8%yoy.
- Accumulate
We derive FY2014 fair value (DCF) at B26. As IVL's normalized profit is
likely to rebound to grow thanks to increasing spreads and sales volume,
we recommend buying.