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Petrochemical and Refinery

PTA spread makes new high, boosting IVL Overweight

Petrochemical and Refinery Plc

PTA spread makes one-year new high

During the recent week, PET spread (IVL) has been outstanding. PTA-Px spread

(making up 20% of IVL’s total sales volume) has leapt by 47.8%wow to US$215/ton

(making the one-year new high) as Px raw material cost has declined by 8.3%wow

due to a significant new Px supply in 2014. Moreover, cotton price has risen to 92.12

cent/lb, making the two-year new high, thus signaling an increase in price of

alternative product like polyester fiber in near future. This is likely to benefit polyester

fiber producers like IVL, as its polyester fiber business makes up 20% of total sales

volume. At the same time, spreads of other products have declined. Olefins spread

(PTTGC, IRPC) has dropped as naphtha (raw material) price has risen by 1.0%wow

while overall product price stayed unchanged. For aromatics spread (TOP, PTTGC,

ESSO, IRPC), aside from pressure from an increase in naphtha price, Px and Bz

product prices have also declined by 8.3%wow and 3.4%wow, respectively. Thus, Px-

Naptha spread has dropped to US$210/ton, and Bz-Naptha spread has decreased to


-Sector’s 1Q14 profit to rebound and grow

We project that the sector’s 1Q14 would rebound and grow from 4Q13, as

petrochemical spread has been increasing, especially olefins spread, thus benefiting

PTTGC and IRPC. IVL’s earnings result is expected to reverse to profit thanks to the

following factors: 1) PTA spread has been rising since the beginning of 2014.

Meanwhile, PET and MEG spreads have stayed close to 4Q13. 2) PTA sales volume is

likely to grow as the PTA factory in Europe has resumed working. 3) PET sales volume

is projected to rise after the polyester fiber factory in Indonesia has started its

commercial run in January 2014. Overall, IVL’s FY2014 net profit is projected to leap

by 188.4%yoy.

- Speculate IVL

We recommend buying and speculating IVL(FV@B23.1). Both PTA spread and cotton

price have made the new high, possibly benefiting IVL’s earnings result. The sector’s

top pick is PTTGC(FV@B91.7).

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