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Indorama Ventures

Big turning point Rec. : BUY

Indorama Ventures Plc (IVL)

IVL has come to another important turning point from its mega investment in an upstream business for sustainable long-term profitability. We view this venture as a good decision.

- Major turning point with mega investment in upstream project

IVL's continuously effective business operation has reflected in its product structure which consists of 60% of basic downstream products (PET and polyester fiber), 27% of high-value-added product and 13% of intermediate products (PTA and MEG). Moreover, IVL has announced an investment in an upstream business Px (for production of PTA) and recently announced a mega investment in an ethylene project (for production of MEG). The two projects are located near sources of crude oil (the Middle East) and shale gas (North America), thus possibly guaranteeing very low production cost. However, the projects still need massive investment. We view the venture in the upstream business of IVL is a good decision, plus with its effective capital raising method for the investment.

- To increase sales to 15 million tons. PET spread remains high

We estimate IVL's net profit in the next three years (2014-2016) at average growth of 22.2% p.a. (CAGR). The company will focus on increasing production of its current projects and has a plan to acquire (M&A) new business, aiming to increase its total sales to 15 million tons by 2019 from 7 million tons at present. PET spread is projected at above US$245/ton owing to lower raw material price and growing PET demand from the recovering economy.

- Turnaround stock. Profit entering real uptrend

We recommend buying IVL. 2015 fair value, DCF, is B40, implying 35% upside from the current share price. 2014 is a year of a business turnaround with a significant normalized profit rebound foreseen, followed by continuous growth in the next five years.

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