IVL – 4Q22 results are worse than expected. because of special items


what happened:

On February 24, 2023, Indorama Ventures Public Company Limited (IVL) reported its 4Q22 earnings turn around to be a loss of THB 11.5 billion, worse than expected due to weaker-than-expected core EBITDA/t. and asset impairment for the Fibers business in Europe and the Combined PET (CPET) business in Asia.

An inventory loss of 4.6 billion baht ($133 million) was also higher than expected. Core net profit was Bt411m (down 92%YoY and 96%QoQ) as core EBITDA/t dropped to just US$82 (down 34%YoY and 48%QoQ) due to the impact of the release a lot of stock

2022 net profit rose 18% to a record high of Bt31bn, driven by strong core EBITDA/t (up 31%YoY), primarily from its integrated oxides and derivatives business. (IOD)

How it affects:

Today (February 27), IVL’s share price remains unchanged, DoD is at 37.75 baht, while the SET Index has decreased by 0.23%, DoD is at 1,630.23 points (as of 12:30 p.m.).

2023 earnings outlook and investment strategy:

IVL executives said PET demand and spreads recovered from 4Q22 due to stock clearance, which led to lower inventories, while market sentiment was more positive after China reopened.

Product spreads are expected to normalize in 2023 after several years of soaring. This was due to supply disruptions and logistical constraints. This widens the Premium spread of Integrated PET prices in Europe and North America. The impact of high gas costs is expected to decrease from >$500 million in 2022.

IVL’s competitiveness remains strong. Considering the high market share of the company. backed by reliable supply Full-year earnings contribution from Oxiteno will be a key driver for YoY earnings, driven by strong demand for surfactants and MTBE for blending in gasoline. IVL’s sales volume is expected to grow 5%YoY to 15.4 million tonnes in 2023.

However, despite InnovestX Research expecting 1Q23 results to recover QoQ due to slowing stock run and rising market sentiment. Because China has returned to open the country again. However, it has revised down its 2023 earnings forecast by 26% to reflect a more reasonable core EBITDA/t assumption (from $138/ton to $133/ton).

For investment strategy, Outperform is rated with a new target price of 62 baht per share, based on 1.7 times PBV (2023), representing 7 times EV / EBITDA, compared to the 10-year average of 11 times. Valuation is still not expensive. IVL trades at just 7.7x P/E (2023), considerably below the industry average of >10x.

As for the important risk factors that must be monitored are

  1. decreased demand
  2. The improvement in the performance of the new assets was lower than expected.
  3. Changes in the law on plastic products


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