Indorama Ventures: Margin recovery takes time
- 4Q24 net profit of THB1.09bn (recovered from net loss y/y, -27% q/q), hit by softer margins across all business units
- Production volume was 3.41mn tonnes (-1% y/y, -4% q/q) and core EBITDA/tonne was USD104 (+30% y/y, -14% q/q)
- Despite being a beneficiary from US/China trade war, slow spending and prolonged chemical trough from excess supply to create downward pressure on margins
- Maintain HOLD with an FY25F TP of THB23
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Core EBITDA/tonne was USD104 (+30% y/y, -14% q/q), while total sales volume came in at 3.41mn tonnes (-1% y/y, -4 q/q). Note that normal operations excluding inventory impact and non-recurring items reported a profit of THB362mn (vs. 4Q23’s net loss of THB86mn and 3Q24’s net profit of THB2.77bn).
IVL also announced a quarterly interim dividend payment of THB0.175/share, XD date to be 6 May 2025. Note that full-year dividend payment stood at THB0.7/share.
4Q24’s key operating statistics
- The performance of combined PET (c.66% of total 4Q24 EBITDA – PET, PTA, PX, recycled PET, special chemical such as MEG, MTBE, EO) improved y/y but deteriorated q/q. On a 4Q-to-date basis, Asia and West PET spreads stood at USD148/tonne (+10% y/y, -2% q/q) and USD427/tonne (+34% y/y, -5% q/q), respectively. This was hit by a) excess production capacity from China, and b) normalising demand from manufacturers. Total sales volume and EBITDA came in at 2.61mn tonnes (-3% y/y, -6% q/q) and USD243mn (+31% y/y, -15% q/q), respectively. Indovinya’s (formally called integrated oxides and derivatives – IOD) performance (c.25% of total 4Q24 EBITDA – surfactant) improved y/y but deteriorated q/q, hit by off-peak demand for crop solutions during winter. Total sales volume and EBITDA came in at 0.35mn tonnes (+3% y/y, -3% q/q) and USD254 (+19% y/y, -14% q/q), respectively.
- The fibre business’s (c.10% of total 4Q24 EBITDA – HVA products) performance improved y/y but deteriorated q/q due to slow auto industry demand, which resulted in declining demand for the mobility business. However, this was partly offset by resilient demand in the hygiene and lifestyle business. On a 4Q24 basis, Asia lifestyle polyester spread stood at USD188/tonne (+74% y/y, +19% q/q). Total sales volume and EBITDA came in at 0.44mn tonnes (flat y/y, +7% q/q) and USD78 (+42% y/y, -33% q/q), respectively.
- IVL booked an inventory loss of THB1.48bn (vs. 4Q23’s loss of THB1.77bn and 3Q24’s gain of THB1.35bn), as PX and MEG decreased by c.USD100/tonne and c.USD10/tonne q/q, respectively.
- Non-recurring items in 4Q24 included a) a forex loss of THB239mn and b) the reversal of THB2.45bn in impairment expenses.
2025F outlook
(+) One of the key beneficiaries of the imminent higher US import tax duty on Chinese chemicals under Trump’s administration… Trump winning the 2024 US election did not bode well for chemical names, as his policy to raise import tax on Chinese goods are set to lead to an influx of excess chemical supply from China into Asia, leading to prices and margins coming under further pressure.
However, IVL is an exception, in our view. As a local chemical producer, it enjoys a cost advantage over chemical products imported from China. This is thanks to IVL’s operational diversification where it has over 100 local plants in over 30 countries.
(-) …but could be weighed down by slow demand and spending. We expect softer core EBITDA margin ahead (at least in 1Q25F) as we project core EBITDA/tonne will stay at c.USD105/tonne (flat y/y) for 2025F. Our view is supported by i) the off-peak season following the new year festival, ii) slow economic activities in China and European countries that would result in slow consumption and spending, iii) the possibility of a prolonged trough cycle in the chemical outlook for 2026-27F, as new additional capacity is projected to come online in the coming years, and iv) potential margin squeeze from increasing Chinese chemical exports to SEA after the imposition of US tariffs on Chinese goods.
However, management anticipates an earnings recovery in 2025F, supported by i) higher volume growth and better sales volume mix, ii) higher benchmark spreads, and ii) further reduction of fixed cost due to asset rationalisation (c.USD140-160mn) and land sales from the shutdown of European assets (c.USD120-140mn).
On a 1Q25TD basis, integrated PTA/PET spreads in Asia averaged USD114/tonne (-18% y/y, -23% q/q) while spreads in the West stood at USD397/tonne (-4% y/y, -7% q/q).
(+/-) Neutral view on EPL’s c.25% share acquisition – earning accretion insignificant. On 24 Feb 2025, IVL announced it will purchase a 24.9% equity stake in EPL Limited (“EPL”), a public company listed on the BSE Limited and National Stock Exchange of India Limited. Total investment cost would be c.THB7.44bn and the payment will be made in cash from operating cash flow. The execution of the transaction depends on the Indian regulatory approval.
We are neutral on this share acquisition. Despite this giving IVL business presence in an emerging market with growth potential, we still deem overall chemical outlook will be under pressure from slow demand and excess supply. With a 25% stake in EPL, we estimate equity income of USD6mn, insignificant to our FY26F earnings estimate (less than 3% of our FY25F net profit projection). This assumption is based on the annual net profits of USD28/25mn in 2023/2024, respectively. However, we are positive on our overall product portfolio as EPL will be long-term EBITDA accretion since EPL’s EBITDAM averaged at 15-19% during 2022-2024.
On the valuation side, we deem the acquisition price as slightly overvalued. Given the cash payment of THB7.44bn, we estimate the forward PER multiple at 22-23x (vs. 20.4x at current trading)
Note that EPL is a leading global manufacturer of PE packaging solutions with significant potential for growth in emerging markets. EPL also offers an attractive entry point into India’s investment landscape, with packaging companies achieving higher market multiples than global peers.
EPL has growing revenues, compatible industry expertise, and a global footprint in PE laminates and laminated tubes used in the oral, beauty, and pharmaceutical industries. With EPL’s operations spanning 11 countries and a strong foothold in high-growth markets such as India, Mexico, Colombia, Brazil, and the Philippines, this investment offers high returns on capital employed. EPL generates high free cashflows and has very low leverage and consistent dividend pay-out to shareholders. As part of EPL’s commitment to sustainability and the circular economy, the company aims for 60% of its tubes to be recyclable by 2028.
Maintain HOLD. We maintain our HOLD rating with an FY25F-based TP of THB23, pegged to a P/BV multiple of 0.91x, equivalent to 1.0SD below its five-year average. Our recommendation is on the back of i) slower-than-expected global demand recovery; and ii) excess capacity from China. However, IVL is one of the key beneficiaries of the escalating trade war between the US/China. Moreover, we expect further upside from margin uplift due to asset optimisation, where IVL can save a fixed cost of USD150mn in 2025F.
Note that we tuned down our FY25F net profit projection by 26% from THB9.60bn to THB7.11bn as we cut our EBITDA/tonne assumption from USD115 to USD105.
| FY Dec | 4Q2023 | 3Q2024 | 4Q2024 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Revenue | 129,109 | 137,413 | 122,099 | (5.4) | (11.1) |
| Cost of Goods Sold | (116,610) | (118,059) | (105,231) | (9.8) | (10.9) |
| Gross Profit | 12,498 | 19,354 | 16,867 | 35.0 | (12.9) |
| Other Oper. (Exp)/Inc | (15,144) | (14,372) | (12,872) | (15.0) | (10.4) |
| Operating Profit | (2,646) | 4,983 | 3,995 | (251.0) | (19.8) |
| Other Non Opg (Exp)/Inc | 1,483 | 1,355 | 300 | (79.8) | (77.9) |
| Associates & JV Inc | 1.13 | (181) | (325) | nm | 79.4 |
| Net Interest (Exp)/Inc | (4,027) | (4,140) | (4,219) | (4.8) | (1.9) |
| Exceptional Gain/(Loss) | (10,568) | 84.8 | 2,216 | nm | 2,514.3 |
| Pre-tax Profit | (15,757) | 2,100 | 1,967 | nm | (6.3) |
| Tax | 3,093 | (636) | (932) | (130.1) | 46.5 |
| Minority Interest | 235 | 41.1 | 60.4 | (74.3) | 47.2 |
| Net Profit | (12,428) | 1,505 | 1,096 | nm | (27.2) |
| Net profit bef Except. | (1,860) | 1,420 | (1,121) | 39.7 | (178.9) |
| EBITDA | 5,762 | 12,321 | 9,835 | 70.7 | (20.2) |
| Margins | |||||
| Gross Margins (%) | 9.7 | 14.1 | 13.8 | ||
| Opg Profit Margins (%) | (2.0) | 3.6 | 3.3 | ||
| Net Profit Margins (%) | (9.6) | 1.1 | 0.9 |
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