Indorama Ventures

Indorama Ventures Plc (IVL) 

 

- Profit to surge in 2Q15 

We estimate 2Q15 net profit at B3.05bn or a growth of more than 12x from the previous quarter owing to inventory gain of B1bn and negative goodwill of B800m. Normalized profit would also increase 6.1%qoq to B1.74bn because 1) EBITDA is projected to rise 2.6%qoq to US$98.5/ton as a result of wider product spreads and 2) sales volume is projected to grow 6.7%qoq to 1.74 million tons. Overall, 1H15 net profit is estimated at B3.3bn, rising 78.1% from the same period last year and making up 72.8% of our full-year forecast. 

 

- Up 2015-2016 forecast to reflect better spreads 

We revise up our profit forecast in 2015 and 2016 to reflect an increase of US$10/ton in IVL’s product spread assumption (PET, PTA, and polymer fiber), versus a previous projection for flat growth. For 2015 forecast, we also revise up extraordinary profit by B800m from negative goodwill in 2Q15. According to the new forecast, the profit is projected to grow fourfold from last year in 2015 and 19.1%yoy in 2016; normalized profit would increase 11.1%yoy in 2H15, driven mainly by production volume that would rise around 6.8% from 1H15 to 3.6 million tons (1.8 million tons each quarter) from full-quarter recognition of new projects, while product spreads would remain close to those in 2Q15. 

 

- Top pick of petrochemical sector 

Based on the new forecast, new 2015 fair value (DCF) is B33. The dividend yield may not be attractive, but the profit tends to make a new high in the next few years.