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Indorama Ventures

High core EBITDA BUY

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.


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