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Tuesday March 24, 2015
Company Update
Indorama Ventures
IVL
Rec. : BUY
M&A deal at a right time. New fair value is B32
Amidst the oil price plunge and low policy rates, IVL was able to acquire a
big company in North America at a preferable price, so this M&A deal is
more reasonable than the greenfield project. IVL's profit is expected to make
a new high.
 Acquire PET company in Thailand, PTA company in Canada
IVL have acquired two M&A deals of Thai and overseas companies:
1) Project Boston – IVL has acquired 94.91% stake in Bangkok Polyester
PCL (BPC) with 105,000 tons/year PET production capacity, thus boosting
IVL's PET production capacity in Thailand by 63.7% to 393,000 ton/year.
2) Project Lion – IVL has acquired 100% stake in CEPSA Chimie Montréal
s.e.c, Canada's biggest PTA producer with 600,000 tons/year PTA
production capacity, making IVL an integrated PET manufacturer in North
America.
IVL used its cash flow from operation on the acquisitions, which is enough
not to hurt its financial status. IVL plans to acquire two more projects in
2H15.
Current Price (B): 25.50
Target Price (B): 32.00
Upside : 25.5%
Dividend Yield : 1.6%
Total Return : 27.1%
Market Cap. (Bm) : 122,763.56
CG Score:
Technical Chart
 Revise up forecast by 7% in 2015, 10% in 2016
We revise up IVL's FY2015-2016 earnings forecast to reflect higher profit
from the acquisitions of the two new companies. Given that IVL will start
booking profit from the two newly-acquired companies for the first time in
2H15 and for a full year in 2016, with net profit of US$15/ton and
US$30/ton, respectively, IVL's net profit is estimated to soar by over
100%yoy to B4.5bn in 2015 and leap by 46.7%yoy in 2016 as sales volume
is expected to rise and make yearly new highs.
 New fair value is B32
We recommend BUY. Under the new forecast, FY2015 fair value (DCF, 11%
WACC) is revised up from B30.50 to B32. Despite unattractive dividend, IVL
is projected to make new highs in the next few years.
เปรี
ASPยบเที
vs IAA
ยบประมาณการของ
Consensus ASP กับ IAA consensus
EPS (B)
(บาท)
ASP
Cons
% diff
2558F
0.89
0.96
-7%
2015F
2016F
2559F
1.31
1.31
0%
ASP Forecast and
ทีSource:
ม่ า : ประมาณการโดยฝ
ายวิIAA
จัย Consensus
ASP, IAA consensus
Key Data
FY: Dec 31
Net Profit (Bm)
Norm Profit (Bm)
EPS (B)
BVS (B)
PER (x)
PBV (x)
EV/EBITDA (x)
DPS (B)
Div yield
ROAE (%)
Source : ASP Research
FY12A
2,740
116
0.57
11.75
48.3
2.3
13.6
0.36
1.3%
4.8%
FY13A
1,326
(631)
0.28
12.79
99.9
2.2
15.2
0.28
1.0%
2.2%
FY14F
1,485
1,714
0.31
15.69
89.1
1.8
12.2
0.38
1.4%
2.2%
FY15F
4,532
4,532
0.89
16.24
30.7
1.7
11.6
0.45
1.6%
5.9%
FY16F
6,650
6,650
1.31
17.15
21.0
1.6
9.6
0.66
2.4%
8.3%
Nalinrat Kittikumpolrat
License No.: 018350
[email protected]
This report is a rough translation of one of our Thai-language research products. It is produced primarily with time efficiency in mind, so that English-reading clients can see what the main recommendations are from our Thai-language research
team. Given that this is a rough-and-ready translation, Asia Plus Securities pcl cannot be held responsible for translation inaccuracies.) The reports and information contained herein are compiled from public data sources and our analysts'
interviews with executives of listed companies. They are presented for informational purposes only and not to be deemed as solicitations to buy or sell any securities. Best attempts have been made to verify information from these vast sources, but
we cannot guarantee their accuracy, adequacy, completeness and timeliness. The analyses and comments presented herein are opinions of our analysts and do not necessarily reflect the views of Asia Plus Securities.
 Acquire PET company in Thailand, PTA company in Canada
Amidst the oil price plunge and low policy rates, IVL will be focusing on M&A
deals in the next couple years. IVL has been revising its plan on two upstream
projects, Abu Dhabi Aromatics and River project (ethane cracker in the US),
since they have been highly volatile as a result of the current oil price plunge
and uncertainty in exercise of right on warrants. However, this would not
significantly affect IVL's earnings in the long run because the company still
has many projects, mainly M&A deals, to boost its growth.
IVL have acquired two M&A deals of Thai and overseas companies:
1) Project Boston – IVL has acquired 94.91% stake in Bangkok Polyester
PCL (BPC) with 105,000 tons/year PET production capacity, thus boosting
IVL's PET production capacity in Thailand by 63.7% to 393,000 ton/year. This
helps IVL win larger market share from its current customer base. Although
BPC have faced net loss in the previous two years, IVL is confident that its
experience and expertise would revive BPC back to make profit by lowering
conversion cost by US$10-15/ton to US$75-80/ton. In addition, BPC
acquisition would decrease PTA export since PTA will be used by BPC instead
(using 80,000 tons/year PTA).
2) Project Lion – IVL has acquired 100% stake in CEPSA Chimie Montréal
s.e.c, Canada's biggest PTA producer and one of three PTA producers in North
America with 600,000 tons/year PTA production capacity. IVL's production
capacity of MEG and PET in North America is 550,000 tons/year and 1.5
million tons/year, respectively, making up 100% and 37.5% of IVL's total
MEG and PET production. This acquisition makes IVL an integrated PET
manufacturer in North America.
The amount of money spend on the acquisition of both companies is not
disclosed yet because the transaction is still in progress, but IVL revealed that
it used its cash flow from operation on the acquisitions, which is enough not to
hurt its financial status. In 2H15, IVL plans to acquire two more projects with
FY2015 total investment budget of B1.5bn, 50% from its cash flow from
operation and 50% from loans.
 Revise up forecast by 7% in 2015, 10% in 2016
We revise up IVL's FY2015-2016 earnings forecast to reflect higher profit from
the acquisitions of BPC and CEPSA Chimie Montréal s.e.c. Given that IVL will
start booking profit from the two newly-acquired companies for the first time
in 2H15 and for a full year in 2016, with net profit of US$15/ton and
US$30/ton, respectively, IVL's net profit is estimated to soar by over
100%yoy to B4.5bn in 2015 owing to the following contributions: 1) Sales
volume is expected to grow by 17.7%yoy to 7.3 million tons. 2) Raw material
(Px) cost is projected to stay low thanks to new supplies of 2 million ton in
2H14 and 2.6 million tons in 2015, which is good for spreads of PET (50% of
IVL's production) and PTA (10% of IVL's production), and the global economic
rebound, which boosts demand for PET and polyester fibers. 3) Selling prices
of PET, PTA, and MEG are currently low, having a limited downside, so IVL is
not likely to face a massive stock loss like in 2014. IVL's net profit is
estimated to leap by 46.7%yoy in 2016 as sales volume is expected to rise
and make yearly new highs.
 Earnings to improve qoq in 1Q15
For a short-term profit outlook, we project normalized profit (inventory loss
excluded) in 1Q15 to grow from B1.4bn in 4Q14, driven by increasing sales
volume from 1.52 million tons in 4Q14. Overall product spread would stabilize
from the prior quarter, so EBITDA per ton would stand near US$100/ton, close
to that of the prior quarter. We project IVL to show lower net loss in 1Q15 or
even revert to slight net profit because stock loss in the quarter would
decrease from as much as B2.4bn in 4Q14.
IVL’s Investment Plans (since 2014)
Overall PET Industry in Thailand
Source : IVL
Source : IVL
IVL’s Investment Projects in North America
New Forecast and Fair Value
2015F
New
Net Profit (Bm)
Source : IVL
2016F
% Chg
Old
New
% Chg
Old
4,532
4,219
7.4%
6,650
6,031
10.3%
EPS (Baht/Share)
0.89
0.83
7.4%
1.31
1.19
10.3%
FV2015 (Baht/Share)
32.00
30.50
4.9%
Source : IVL
Regional Petrochemical Recommendations
Company
CHINA
SINOPEC CORP-H
PETROCHINA-H
TAIWAN
NAN YA PLASTICS
FORMOSA PLASTIC
FORMOSA CHEM & F
JAPAN
TOSOH CORP
JX HD
MITSUI CHEMICALS
HONG KONG
SINOPEC KANTONS
SINOPEC SHANG-H
INDIA
RELIANCE INDS
BHARAT PETROL
INDIAN OIL CORP
Malaysia
PCHEM
PETRONAS DAGANGA
THAILAND
PTT PCL
PTT GLOBAL CHEM
THAI OIL PCL
IRPC PCL
BANGCHAK PETROLE
INDORAMA VENTURE
VINYTHAI PUB CO
THAI PLASTIC CHM
AVERAGE
REC./BB
Rating
C urre nt
T a rge t
ราคาปั
จจุบ ัน ราคาเป
้ าหมาย
P ric e
P ric e
Upside
(%)
PBV
2015F
2016F
2558F
2559F
Key Risks
PER
2015F
2016F
2558F
2559F
3.50
3.24
6.1
8.3
6.3
8.8
4.4%
5.7%
0.9
1.0
0.8
1.0
15.5
11.2
11.0
21.0
4.30
4.04
3.04
68.4
75.3
71.2
76.8
83.6
70.6
12.2%
11.0%
-0.8%
1.7
1.7
1.5
1.7
1.7
1.4
17.9
20.5
22.5
16.0
18.3
19.0
3.55
3.50
3.35
597.0
481.8
397.0
631.3
490.0
361.4
5.7%
1.7%
-9.0%
1.3
0.6
1.1
1.2
0.6
1.0
5.8
23.4
10.3
8.0
16.0
4.50
3.18
5.5
2.6
8.0
2.6
46.9%
0.6%
1.2
1.2
1.1
1.1
18.4
15.4
13.8
12.9
4.53
4.31
4.06
842.0
715.4
342.0
1063.5
833.4
394.8
26.3%
16.5%
15.5%
1.2
2.4
1.2
1.1
2.2
1.1
11.3
16.1
13.8
10.6
12.4
9.8
2.75
1.43
5.3
19.3
5.2
15.7
-3.1%
-18.5%
1.8
3.6
1.7
3.4
16.1
26.4
14.3
24.1
BUY
BUY
HOLD
BUY
HOLD
BUY
HOLD
HOLD
326.00
53.25
52.00
4.00
33.00
25.50
9.95
28.25
398.00
67.50
48.00
5.20
33.50
32.00
n.a.
n.a.
22.1%
26.8%
-7.7%
30.0%
1.5%
25.5%
n.a.
n.a.
1.3
0.9
1.0
1.1
1.3
1.6
NM
NM
1.3
1.1
0.9
1.0
0.9
1.2
1.5
NM
NM
1.3
8.7
8.1
15.1
9.9
10.7
28.5
NM
NM
14.0
8.2
7.2
10.1
8.9
9.3
19.4
NM
NM
13.4
- Unplanned shutdown
- Country risk
- Petrochemical spreads missing forecast
- Some investment projects delayed as a result of
unsuccessful capital raising
Remark: - Calculation excluded companies with unusual PER or PBV
- BB Rating is the average from Recommendation Consensus of analysts in
the last 12 months etc.
5 = BUY, 4 + WEAK BUY, 3 = HOLD, 2 = WEAK SELL, 1 = SELL
Source : Bloomberg / ASP Research
Source : ASP
2015-2016 Earning Forecast
Profit / Loss (Bm)
31-Dec
Statement of Cash flows (Bm)
31-Dec
2013
2014F
2015F
2016F
Sales
229,120
243,907
285,287
308,667
2013
2014F
2015F
2016F
Cost of Sales
(211,779)
(222,070)
(261,507)
(281,546)
Gross Profit
17,341
21,837
23,780
27,121
Adjustments to reconcile net profit
1,517
1,771
4,787
6,903
-
-
-
Selling and Admin. Expense
(12,772)
(16,537)
(14,835)
(15,588)
-
Depreciation & Amortize
6,351
7,309
7,423
7,906
2,834
Cash flows from operating
Net Profit
Interest Expense
(3,811)
(3,555)
(3,980)
(3,920)
Increase / Decrease from Operating activities
(2,467)
7,934
6,872
Other Income
1,126
1,573
1,284
1,284
Others
4,979
5,408
5,745
5,747
Net Profit before tax
3,918
5,485
6,217
8,850
Cash flows from operating - net
10,379
22,421
24,828
23,390
Income Tax
(1,294)
(1,614)
(1,430)
(1,947)
Cash flows from Investing
934
3,871
4,787
6,903
Increase / Decrease from short-term investments
-
(1,108)
(1,356)
-
-
Increase / Decrease from investment in Related Companies
188
(1,405)
(270)
(269)
Increase / Decrease from Fix Asset
(7,123)
(11,956)
(41,910)
(14,053)
Cash flows from Investing - net
(6,716)
(18,523)
(47,180)
(19,322)
-
-
-
-
Net Profit before Extra Items
Profit sharing from Affiliates
MI
(191)
(285)
Other Extra Items
1,690
(744)
Net Profit
1,326
1,485
(255)
(253)
-
-
4,532
6,650
Cash flows from financing activities
Increase / Decrease Loan
Sales Growth (%)
(2,302)
-
(911)
-
26,655
-
(822)
Increase / Decrease Capital & Premium on ordinary shares
-
-
-
Others
-
-
-
-
Decrease dividend expense
(1,626)
(1,654)
(1,829)
(2,266)
(3,928)
(2,565)
24,826
(3,089)
(265)
1,333
2,473
980
2016F
8.7%
6.5%
17.0%
8.2%
-51.6%
12.0%
205.1%
46.7%
Gross Profit Margin (%)
7.6%
9.0%
8.3%
8.8%
Cash flows from financing activities - net
Net Profit Margin (%)
0.6%
0.6%
1.6%
2.2%
Increase / Decrease - Net Profit
1Q14
2Q14
3Q14
4Q14
31-Dec
2013
2014F
2015F
Sales
61,647
64,030
63,606
54,625
Cash & Cash equivalents
4,114
5,420
7,893
8,873
Cost of Sales
(56,368)
(57,405)
(57,984)
(50,312)
Trade accounts receivable
28,827
26,203
31,699
34,296
28,940
29,141
35,289
38,005
6,278
6,240
6,240
6,240
Net Profit Growth (%)
Quarterly Profit / Loss (Bm)
Balance Sheet (Bm)
Gross Profit
5,279
6,625
5,622
4,312
Inventories
Selling and Admin. Expense
(3,842)
(4,229)
(4,318)
(4,148)
Other Current Asset
Interest Expense
(865)
(918)
(904)
(867)
Property, Plant & Equipment - net
Other Income
351
259
390
572
Total Asset
Net Profit before tax
96,213
98,901
91,941
88,922
189,042
195,488
200,407
203,600
1,154
2,309
1,067
954
Income Tax
(475)
(507)
(318)
(315)
Short-term Loan
16,075
8,581
5,730
5,274
Net Profit before Extra Items
680
1,802
750
639
Trade accounts payable
25,663
27,764
35,289
38,005
99
174
275
(172)
Other Current Liabilities
6,614
6,432
6,432
6,432
MI
(75)
(115)
(31)
54,243
Other Extra Items
-
Net Profit
368
Profit / Loss for FX
Sales Growth (QoQ)
Net Profit Growth (QoQ)
1,483
Long-term Loan
65,259
60,257
58,416
-
(744)
(63)
Other Non Current Liabilities
74,494
71,868
61,136
65,854
587
(953)
Total Debt
127,474
119,933
125,223
133,387
7.0%
3.9%
-0.7%
-14.1%
-178.5%
302.4%
-60.4%
-262.3%
Gross Profit Margin
8.6%
10.3%
8.8%
7.9%
Net Profit Margin
0.6%
2.3%
0.9%
-1.7%
Key Financial Ratio
4,814
4,814
4,814
4,814
Share Premium
29,775
29,775
29,775
29,775
Retained earnings
26,846
26,705
29,407
33,791
Shareholders' Equity
61,568
75,555
78,184
82,567
189,042
195,488
200,407
203,600
Liabilities & Shareholders' Equity
Key Assumptions
31-Dec
2013
2014F
2015F
2016F
Current Ratio (x)
1.29
1.50
1.35
1.42
Account Payable Turnover (x)
50.00
50.00
50.00
50.00
Account Receivables Turnover (x)
40.00
40.00
40.00
40.00
Inventory Turnover (x)
50.00
50.00
50.00
50.00
1.31
0.83
0.86
0.73
Net Debt / Equity (x)
Paid-up Capital
31-Dec
2013
2014F
2015F
2016F
30.00
33.00
33.00
33.00
PTA Spread (USD/ton)
112
120
120
140
PET Spread (USD/ton)
236
200
200
220
Polyester Spread (USD/ton)
219
190
190
210
PET Production (x1000 ton/yr)
3,188
3,059
3,726
3,830
2,078
2,072
2,368
2,619
909
1,110
1,110
1,219
Foreign Exchange Rate (THB/USD)
ROAA
0.7%
0.8%
2.3%
3.3%
PTA Production (x1000 ton/yr)
ROAE
2.2%
2.2%
5.9%
8.3%
Polyester Production (x1000 ton/yr)
Source : ASP Research