Petrochemical & Refinery

Positive factors benefit IVL, PTTGC Olefins spread remains strong, benefiting PTTGC, while IVL's 2Q14 net profit would outshine peers. We recommend buying both IVL and PTTGC.

Petrochemical & Refinery

- HDPE spread makes 6-year record high

Over the past week, the spread of olefins products (PTTGC and IRPC)

has widened continuously for the third months. Particularly, HDPE spread

made a new high in six years as product prices have remained high despite

weakening price of raw material, Naphtha. Similarly, the spread of PET

products (IVL) has recovered again in the past month, thanks to

decreasing raw material cost from new Px supply in 2H14.

- IVL profit to outshine peers in 2Q14

We project 2Q14 profit of the sector to stay flat from 1Q14 due to pressure

from TOP and IRPC. Nevertheless, net profit of IVL would outshine peers in

2Q14, with skyrocketing growth of 294.0%qoq to B1.45bn (larger than our

previous projection on June 11), from the following contributions: 1)

increasing sales volume, 2) decreasing stock loss, and 3) negative goodwill

from acquisition of PHP Fibers and Artenius at a lower price than the fair

value. However, currently wider olefins spread would benefit both PTTGC

and IRPC in 2H14.

- Buy IVL, PTTGC

We recommend buying both IVL([email protected]) and PTTGC([email protected]). IVL is

a turnaround stock in 2014 with a potential for continuous profit growth in

the next three to five years. PTTGC’s share price has already declined to

reflect negative factors and the current P/E ratio is only 9.9x, lower than the

regional average of 13-14x, with dividend yield of as high as 5% p.a.