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Indorama Ventures

Key takeaways from local NDR

Indorama Ventures Plc (IVL)

Investment thesis

Early this week, we accompanied IVL executives, Mr Vikash Jalan, AVP- Corporate Finance, and Mr Richard Jones, Head of Investor Relations and Corporate Communications, on a local non-deal roadshow. The key messages from the NDR reaffirmed our views regarding the firm's improving earnings prospects and long-term growth outlook. Anticipation of core profit growth throughout this year together with fatter margins will push up the share price going forward, we believe. Moreover, upcoming acquisitions should give short-term boosts to the stock. The key discussion points are summarized below:

Polyester chain margin expected to improve in 2014

MEG and PET spreads are expected to be sustained stable YoY in 2014. The US MEG spread should remain near US$500/t, while the Asian PET spread is likely to stay subdued at $180/t. In contrast, the Western PET spread is expected to be sustained strong at $280/t, supported by a balanced market in the US and supply ratinalization in Europe. PTA (Asia) and polyester fiber (Asia) spreads should improve this year, driven by a lower PX feedstock cost, greater discipline among major Chinese producers and supply rationalization.

Volume growth & spread recovery to drive FY14 earnings expansion

IVL is expected to post core earnings growth for FY14, driven by a spread recovery and sales volume growth with a full operational year for an MEG plant in the US, the start-up of a new polyester plant in Indonesia (in February) and through cost savings brought about by the rationalization of PET assets. The firm's production volume is anticipated to increase 12% YoY this year to 6.5mta, driven by a full operational year for the MEG facility in the US and a new polyester plant. Furthermore, there is scope for upside to IVL's FY14 sales volume from potential acquisitions.

M&As to drive S-T growth, greenfield projects to drive L-T growth

YTD, management has announced two acquisitions, PHP and SASA. The acquisitions will strengthen its HVA portfolio. Apart from the product diversification, IVL will pursue geographical diversity through the acquisition of PET assets in Turkey and the Middle East. The third acquisition for this year is expected to be announced by June, and the fourth before the end of the year. Moreover, IVL will continue pursuing growth through organic means by investing in greenfield projects.

Substantial financial capacity for future investment

The firm should be able to finance upcoming investment projects without any difficulty, given expected strong operational cash flows coupled with capacity to take on new debt. Given its strong financial capability, management said there aren't any plans for capital-raising in the foreseeable future.




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