2QCY12 earnings to be weighed down by inventory...

MICA (P) 012/01/2012 Ref. No.: SG2012_0184 1 of 13

Indorama Ventures - IVL 2QCY12 earnings to be weighed down by inventory losses Bloomberg │ Reuters IVL TB │IVL.BK

Phillip Securities Research Pte Ltd 22 June 2012

Report type: Company Update

Company Overview IVL is engaged in the manufacture and sale of polyethylene terephthalate (PET), polyester fiber and yarn, purified terephthalic acid (PTA) and wool. IVL is a holding company investing in integrated petrochemical

value chain of PET, PTA, polyester and wool. It is also the world’s biggest PET producer.

Global PET demand is forecast to grow at a CAAGR of 9% in 2011-14. Asia is the world’s biggest PET producer and consumer. PET demand in Asia is also expected to be the strongest in the world due to its relatively low per capita consumption of PET with the highest GDP growth in the world, 1.5-2 times greater than global GDP.

In 2010E, the global PTA demand grew by 12.9% and 60.9% of PTA was used in production of polyester polymers.

IVL has shifted its expansion focus to upstream business, starting with MEG on expectations that MEG spreads will rise as much as 63.5% over the next five years. PTA spreads are set to narrow while PET spreads are poised to widen over the next five years.

IVL reported 1QCY12 normalized profit of Bt764mn. The profit figure represented a sharp drop of 83.2% from 1QCY11 but marked a turnaround from a loss in 4QCY11. PET contributed the biggest share of EBITDA at 68.1% in 1QCY12 while polyester fiber and wool business made up only 23.7% of EBITDA but was the least volatile.

Earnings are expected to remain weak in 2QCY12 as a result of inventory losses. For the whole of CY12, we forecast IVL to achieve a profit growth of 22% on a normalized basis.

We maintain a ‘BUY’ call on IVL with a CY12 target price of Bt42/share.

What is the news? Even though sales volume would rise in 2QCY12 driven by resumption of partial operations at the flood-hit PET plant in Lopburi Province and consolidation of the recently acquired Old World, a sharp correction in oil prices, which drags product prices lower, would lead to huge inventory losses in 2QCY12. Historical data showed inventory gains/losses moved in lockstep with Dubai crude oil prices.

How do we view this? For the whole of CY12, we forecast IVL to achieve a profit growth of 22% on a normalized basis. Sales volume growth would be a key driver of profit growth. Full-year sales volume is forecast to rise 24% to 5.4mn tons from 4.36mn tons a year ago driven by capacity expansion plan. In 2HCY12, additional 488k tons of PET capacity, scheduled to come on stream in 2HCY12 would further push up sales volumes.

Investment Actions? We maintain a ‘BUY’ call on IVL with a CY12 target price of Bt42/share. Our sensitivity analysis shows every US$10 rise or drop in EBITDA per ton on assumptions that long-term growth is unchanged at 1.5% will cause target price to increase by Bt7.25/share or decrease by Bt7/share respectively.

Analyst Phillip Research Team +65 65311240 +65 63367607

[email protected]

Indorama Ventures

Rating 1.00 Buy

- Previous Rating 1.00 Buy

Target Price (Bt) 42.00

- Previous Target Price (Bt) 47.50

Closing Price (Bt) 28.25

Expected Capital Gains (%) 48.7%

Expected Dividend Yield (%) 2.8%

Expected Total Return (%) 51.5%

Raw Beta (Past 2yrs w eekly data) 2.03

Market Cap. (USD mn) 4,290

Enterprise Value (USD mn) 5,898

Market Cap. (Bt mn) 136,003

Enterprise Value (Bt mn) 185,547

3M Average Daily T/O (mn) 26.4

52 w eek range 23.2 - 50.5

Closing Price in 52 w eek range

Major Shareholders (%)

63.7

4.8

3.1

CG Report - 2011

(Very Good)

Key Financial Summary

FYE 12/10 12/11 12/12F 12/13F

Revenue (Btmn) 98,764 194,454 246,755 282,049

Net Profit (Btmn) 10,411 15,568 12,384 19,337

EPS (Bt) 2.46 3.29 2.57 4.02

Net Profit, adj. (Btmn) 8,670 10,154 12,384 19,337

EPS, adj. (Bt) 2.05 2.15 2.57 4.02

P/E (X),adj. 13.8 13.2 11.0 7.0

BVPS (Bt) 7.44 12.21 15.79 19.00

P/B (X) 3.8 2.3 1.8 1.5

DPS (Bt) 0.66 1.00 0.80 1.30

Div. Yield (%) 2.3 3.5 2.8 4.6

Source: Bloomberg, PSR est.

*All multiples & yields based on current market price

Valuation Method

DCF (WACC 9.75%, terminal g: 1.50%)

1. Indorama Resources Limited

2. BBL

3. NVDR

20.00

40.00

60.00

80.00

Jun-1

1

Jul-1

1

Aug-1

1

Sep-1

1

Oct-1

1

Nov-1

1

Dec-1

1

Jan-1

2

Feb-1

2

Mar-1

2

Apr-1

2

May-1

2

Jun-1

2

0

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80

120

Volume, mn IVL TB EQUITY SETI rebased

0% 50% 100%

Indorama Ventures

Rating 1.00 Buy

- Previous Rating 1.00 Buy

Target Price (Bt) 42.00

- Previous Target Price (Bt) 47.50

Closing Price (Bt) 28.25

Expected Capital Gains (%) 48.7%

Expected Dividend Yield (%) 2.8%

Expected Total Return (%) 51.5%

Raw Beta (Past 2yrs w eekly data) 2.03

Market Cap. (USD mn) 4,290

Enterprise Value (USD mn) 5,898

Market Cap. (Bt mn) 136,003

Enterprise Value (Bt mn) 185,547

3M Average Daily T/O (mn) 26.4

52 w eek range 23.2 - 50.5

Closing Price in 52 w eek range

Major Shareholders (%)

63.7

4.8

3.1

CG Report - 2011

(Very Good)

Key Financial Summary

FYE 12/10 12/11 12/12F 12/13F

Revenue (Btmn) 98,764 194,454 246,755 282,049

Net Profit (Btmn) 10,411 15,568 12,384 19,337

EPS (Bt) 2.46 3.29 2.57 4.02

Net Profit, adj. (Btmn) 8,670 10,154 12,384 19,337

EPS, adj. (Bt) 2.05 2.15 2.57 4.02

P/E (X),adj. 13.8 13.2 11.0 7.0

BVPS (Bt) 7.44 12.21 15.79 19.00

P/B (X) 3.8 2.3 1.8 1.5

DPS (Bt) 0.66 1.00 0.80 1.30

Div. Yield (%) 2.3 3.5 2.8 4.6

Source: Bloomberg, PSR est.

*All multiples & yields based on current market price

Valuation Method

DCF (WACC 9.75%, terminal g: 1.50%)

1. Indorama Resources Limited

2. BBL

3. NVDR

20.00

40.00

60.00

80.00

Jun-1

1

Jul-1

1

Aug-1

1

Sep-1

1

Oct-1

1

Nov-1

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Dec-1

1

Jan-1

2

Feb-1

2

Mar-1

2

Apr-1

2

May-1

2

Jun-1

2

0

40

80

120

Volume, mn IVL TB EQUITY SETI rebased

0% 50% 100%

Indorama Ventures - IVL Thailand Equities Research 22 June 2012

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COMPANY PROFILE

Holding company investing in integrated petrochemical value chain of PET, PTA, polyester and wool Indorama Ventures Plc, formerly known as Beacon Global Limited was established on Feb 21, 2003 and later renamed as Indorama Ventures Plc on Mar 19, 2008. IVL is a holding company investing in companies operating in an integrated petrochemical value chain both domestically and internationally across 15 countries in four continents of Asia, Africa, North America and Europe. These companies are manufacturers and suppliers of (1) polyethylene terephthalate (PET), (2) polyester fiber and yarn, (3) purified terephthalic acid PTA, and (4) wool. Currently IVL has a total of 28 manufacturing facilities. IVL was transformed into a public company on Sep 25, 2009. As of Dec 31, 2011, IVL had a registered capital of Bt4,815,856,719 and a paid-up capital of Bt4,814,257,245, comprising 4,814,257,245 ordinary shares at a par value of Bt1 each. Its major shareholder is Indorama Resources Limited, which is 99.99% owned by Canopus International Limited. Mr. Aloke Lohia and his immediate family hold a 49% stake in Canopus International with voting rights of 76% of total votes in Canopus International. Mr. Sri Prakash Lohia and his immediate family own 51% of Canopus International with voting rights of 24% of total votes in Canopus International. In Jan 2010, IVL sold 400mn ordinary shares in the IPO at Bt10.20/share. It received Bt4,080mn in proceeds from the IPO. At the same time, its minority shareholder Indorama Polymers Plc, a subsidiary of IVL agreed to an offer to swap its shares for 582,727,137 ordinary shares in IVL. Shares of IVL were listed and began trading on the Stock Exchange of Thailand on Feb 5, 2010 under the ticker symbol ‘IVL.’ In 2010, IVL became a constituent of the SET50 Index, the FTSE SET Large Cap Index and the MSCI. Production facilities across 15 countries with PET accounting for biggest portion of capacity, IVL also the world’s biggest PET producer Currently IVL has its headquarters in Bangkok with production facilities located across 15 countries around the globe. Its businesses can be classified in the following business segments: 1. PET: PET is part of core polyester value chain business. Currently IVL has operated 13 PET production facilities across three major consuming continents of North America, Europe and Asia. Due to continued aggressive capacity expansion, its total installed capacity jumped considerably from 20,000 tons per annum in 1995 to 3.2716mn tons per annum at end-2011, making IVL the world’s biggest PET producer, accounting for 14.7% of global installed capacity. M&G Group is the world’s second-biggest PET producer with total installed capacity of 1.76mn tons. Its PET facilities are located across the following three major continents: (1) four PET facilities in Asia (Thailand, China and Indonesia), (2) five PET facilities in Europe (Netherlands, the UK, Lithuania, Poland and Italy), and (3) four PET facilities in North America (the US and Mexico).

PET resin is a plastic polymer resin primarily used for beverage containers and food packaging, for packaging of pharmaceutical and household products and in industrial packaging applications. IVL also produces PET packaging in the form of preforms, bottles and closures through a joint venture with Serm Suk Pcl, the exclusive Pepsi bottler in Thailand. Its PET resins are marketed under Ramapet® and PreformanceTM PET brands. 2. Polyester fiber and yarn: At end-2011, total production capacity of polyester fibers reached 776.6k tons. Two polyester plants in Thailand had total installed capacity of 323k tons per annum. In the US, Invista had a total annual capacity of 71k tons. Two polyester facilities in Indonesia operated by SK Chemical had total annual capacity of 109.6k tons. The 75%-owned Trevira GmbH, which operated the polyester staple fiber and specialty filament businesses in Germany and Poland had installed capacity of 120k tons. In Nov 2011, IVL acquired a 100% stake in the recycle and fiber manufacturing businesses of Europe-based Wellman International, which has three production facilities, based in Ireland, Netherlands and France with total annual capacity of 153k tons. Its polyester product offerings can be divided into the following three main categories:

Figure 1: Polyester products

Commodity Non-Commodity

Polyester Chips

Textile Grade and Semi Dull Chips

Film Masterbatch, Film Grade, Flame Retardant, Cationic Dyeable, Antimony Free, Anti Microbial, Full Dull and Semi Bright Chips

Polyester Fibers

Spinning Fiber Hollow Conjugate, Splin Lace, Hygiene, Optically Bright, Super Bright, Wool Blend and Anti Bacterial Fibers

Polyester Yarns

Regular Denier and Semi Dull Yarns

Micro Deniers, Multi Filament, Black, Colored, Bright, Full Dull, Anti Bacterial, Moisture Management and Carpet Yarns

3. PTA: IVL has four PTA facilities with total installed capacity of 1.934mn tons per annum. Two of them are in Thailand, one in the Netherlands and the other one in Italy, 50%-owned by IVL. PTA is captively used by IVL as a feedstock for production of polyester fibers and PET at 49.4% of its total feedstock requirements in 2011. PTA is an upstream feedstock used in the manufacture of polyester fibers and yarns, PET resin and polyester film. It is also a key feedstock component in the polyester value chain. PTA is produced from PX, which is an aromatic hydrocarbon, a downstream derivative in the petrochemical chain and its sole use is in the production of polyester polymer intermediates PTA and DMT, which is replaced by PTA. PX is derived from the refining of naphtha obtained from crude oil. 4. Wool: The wool plant is located in Thailand.


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PET INDUSTRY OVERVIEW & OUTLOOK

PET demand expected to grow at CAGR of 9% in 2011-14 PET resin is produced from polyester polymer which is a mixture of PTA and MEG. PET is also widely used in various applications and is one of the most widely used packaging materials worldwide. From 2000-10E global PET demand grew at a CAGR of 8.9% from 7.4mn tons in 2000 to 17.3mn tons in 2010E. The growth was driven largely by rising consumer spending, population expansion, the substitution of PET resin as a primary packaging material instead of glass and aluminum and the increased use of PET resin in other end-use products. SBA-CCI has forecast that global PET demand in 2010-14 will grow at a CAAGR of 9% from 18.9mn tons in 2011 to 24.5mn tons in 2014. Figure 2: Global PET demand growth outlook

Source: SBA-CCI Asia the world’s biggest PET producer and consumer, demand in Asia seen up the most among all regions of the world In 2010E, the global PET industry had total capacity of 17.3mn tons and demand was on par with supply at 17.3mn tons. Asia accounted for the biggest share of global capacity at 47.7% and it was in oversupply of 2.6mn tons or 46.4%. On the other hand, other regions of the world were in supply deficit by 2.9mn tons. In Europe, demand surplus was the highest among all regions of the world at 1.1mn tons. Based on Figure 1, showing global PET demand will grow at a CAAGR of 9% in 2010-14 according to the forecast by SBA-CCI, Asia is expected to see the strongest demand growth of 14.7% per annum among all regions of the world to 9.6mn tons, well above averages. Asia would also continue to be the world’s biggest PET consumer, accounting for 39.3% of global output. Figure 3: Breakdown of global PET demand growth by region Source: SBA-CCI

Per capital consumption of PET in Asia still low but GDP growth the highest in the world Demand for PET resin in Asia is expected to grow at the fastest pace in the world driven chiefly by (1) strong economic growth in Asia: The IMF has estimated that GDP in Asia will grow by 6%-6.5% in 2012-13, well above global GDP forecast of 3.5%-4.1% respectively. Much of the growth in Asia would largely come from populous China and India with strong GDP growth of nearly 10%. The IMF has forecast that Chinese and Indian economies will grow 8.2%-8.8% and 6.9%-7.3% in 2012-13 respectively, outpacing growth in Europe and the US, both of which remain dogged by economic worries; and (2) a relatively low per capital consumption of PET in Asia at 1.5 kg per annum, leaving more scope for future growth compared with the estimated global average of 2.5 kg per annum: PET consumption rate in Asia is still far from other developed countries in North America and EU which have a per capita consumption of 8.6 kg and 6.7 kg respectively. In addition, PET consumption in Asia is also lower than that of developing countries in Central Europe and South America, which have a per capita consumption of 3.6 kg and 3.3 kg respectively. PTA INDUSTRY OVERVIEW & OUTLOOK

PTA accounts for the biggest portion of feedstock used in production of polyester polymers at 60.9% In 2010E, global PTA production was estimated at 43.9mn tons and demand was expected to rise 12.9% y-y to 43.8mn tons. If we look at PET demand CAGR of 6.9% during 2006-2010E, it outpaced PTA supply CAGR of 6.7% during the same period of 2006-2010E from 33.8mn tons in 2006 to 43.9mn tons in 2010E. The growth was the result of the strength in polyester polymer production and the continuing use of PTA as a substitute for DMT as polyester polymer intermediate of choice. Note that PTA is not widely used in other applications than being a key component in the polyester polymer production process. In 2010E, 60.9% of PTA was used in production of polyester polymers, 31.6% in PET resin production and the remaining 7.5% in production of film and specialties. For this reason, the PTA industry has been influenced by polyester polymer and PET industries. Figure 4: Breakdown of global PTA consumption in 2010E

Demand Market Share Demand Market Share CAGR

2010E 2010E 2014E 2014E 2010E – 2014F

(mnton) % (mnton) % %

North America 3.9 22.60% 4.5 18.40% 3.50%

South America 1.5 8.70% 2.1 8.40% 8.10%

Europe Union 3.4 19.60% 3.9 15.80% 3.30%

Central Europe 1 6.00% 1.5 6.10% 9.50%

Middle East /Africa 1.9 11.00% 2.9 12.00% 11.50%

Asia 5.6 32.10% 9.6 39.30% 14.70%

World 17.3 100% 24.5 100% 9.00%

Breakdown Global PTA Consumption in 2010E

Ployester,

60.9%

Pet, 31.6%

Flim Sheet,

7.5%


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Focus turns to upstream expansion, starting with MEG and then PX IVL has steadily expanded its production capacity. Its total production capacity jumped from 1.6mn tons in 2008 to 5.8mn tons in 2011. Much of the capacity additions were PET, PTA and polyester fibers, all of which were intermediate petrochemical products. Lately in Feb 2012, IVL shifted its expansion focus to upstream business through the acquisition of EO/EG with a total capacity of 632k tons. MEG was its key product with a total capacity of 358k tons. IVL has forecast that MEG spreads will rise as much as 63.5% to US$613/ton during 2012-16 from US$375/ton during 2003-11. Currently IVL is looking at the possibility of investing in a new greenfield 2.2mn-ton PX/PTA/PET project possibly in India or the Middle East. The investment may be in the form of a joint venture. Feasibility study is currently underway. Under the original plan, construction is expected to be completed in 2016 but we believe there is likelihood that construction will be delayed amid the threat of slowing economic growth and a slower-than-expected recovery of the industry. PTA spreads set to narrow but PET spreads poised to widen over next five years IVL has forecast that PTA spreads over the next five years from 2012-16 will soften as a result of oversupply in Asia. Based on the compiled data, global PTA capacity is expected to rise by 36.7mn tons during 2012-15, which will in turn drag PTA spreads down by 6.2% to US$257/ton from an average of US$274/ton in 2003-11. PET spreads are poised to rise by 7.7% from US$234/ton to US$252/ton. On this basis, integrated PTA/PET margin is expected to hold steady at US$509/ton. Figure 5: Resilient integrated PTA/PET margin Sources: SBA, CCI, IVL analysis CY11 OPERATING PERFORMANCE

North America sales up most among all regions in CY11, the biggest contributor Last year, IVL generated total sales of Bt186,096mn, up 92% y-y as continued capacity expansion pushed production volume up 37% to 4.36mn tons, translating into utilization rate of 86%, still below its normal average of 95% due to (i) the production halt at Alphapet hit by tornado, (ii) an unplanned maintenance shutdown at polyester plant in Rayong Province and (iii) a temporary plant shutdown in Lopburi Province caused by floods. Last year, North America recorded the highest sales growth

among all regions of 216% to US$2,029mn and contributed the biggest proportion of the group’s total sales at 33% thanks to the successful acquisition of PET facility from Invista with a total production capacity of 880k tons. Asia came second in terms of sales growth at 61% following the acquisition of PET and polyester plants in China and contributed 32% of the group’s total sales. Europe ranked third with sales growth of 59%, contributing 26% of the group’s total sales. Ex-inventory EBITDA up 38.4% y-y in CY11, PET the biggest contributor at 65% Last year, IVL generated total EBITDA of US$558mn, up 28.3% y-y but EBITDA per ton dropped 5.9% to US$128. Stripping out inventory gain, core EBITDA per ton rose 1.6% to US$127 and total EBITDA jumped 38.4% to US$552/ton. In this period, PET had the highest EBITDA of US$361mn, up 67% y-y and contributed the biggest proportion of the group’s total EBITDA at 65%. Polyester and wool business came second as it contributed 19.6% of the group’s total EBITDA. Last year, EBITDA at polyester and wool business surged 68.75% y-y to US$108mn. PTA saw its EBITDA drop 21% y-y to US$94mn and was the least contributor to the group’s total EBITDA at 17%. 1QCY12 EARNINGS REVIEW

1QCY12 normalized profit drops 83.2% from 1QCY11 but reserves loss in 4QCY11 In 1QCY12, IVL generated sales of Bt52,551mn, up 29.6% y-y and 21.3% q-q. Net profit for the quarter came in at Bt1,691mn or Bt0.35 a share. The quarterly profit represented a sharp drop of 84.7% from 1QCY11but marked a turnaround from a loss of Bt1,458mn in 4QCY11. In this period, IVL booked exceptional gains of Bt765mn on bargain purchase or negative goodwill on completed acquisitions and insurance claims for flood damages and FX gain of Bt163mn. Stripping out ex-items, 1QCY12 normalized profit plunged 83.2% y-y to Bt764mn. Core EBITDA per ton in this period dropped 57% y-y and 5.3% q-q to US$71/ton. On a y-y basis, the sharp fall in normalized profit was largely blamed on the steep decline in PTA spread in Asia and a big drop of 80.4% y-y in inventory gains to US$11.80/ton from US$60/ton. On the other hand, the profit turnaround in q-q terms was chiefly credited to (i) a nascent recovery of demand in Europe and North America, which pushed sales volume up 12.6% q-q to 1.19mn tons, and (ii) inventory gains of US$11.8/ton versus inventory losses of US$34/ton. Figure 6: Quarterly breakdown of EBITDA per ton and inventory gains/losses Source: Company

Resilient integrated PTA/PET Margin

274 257

234 252

0

100

200

300

400

500

600

2003-2011 2012E-2016E

(US$/ton)

PTA PET

508 509

Quarter EBITDA per ton (US$)

158

111

75 71

114

171

225

-7 -8-29 -34

165

127

147121

82

41

127129139

1116

6044

-40

0

40

80

120

160

200

240

280

Q2/10 Q3/10 Q4/10 Q1/11 Q2/11 Q3/11 Q4/11 Q1/12

Core EBITDA Reported EBITDA Stock G/L


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PET contributes the biggest share of EBITDA at 68.1% in 1QCY12 while polyester fiber and wool business makes up only 23.7% of EBITDA but the least volatile In 1QCY12, EBITDA of IVL’s three core businesses ex-inventory was down 56.6% y-y but up 96.2% q-q to Bt2,916mn. PET contributed the biggest share of the group’s EBITDA at 68.1% or Bt1,989mn, down 44.4% y-y but up 93.9% q-q. On the other hand, PTA made up the smallest proportion of EBITDA at 8.2%. Because of weak margins, PTA’s EBITDA fell the most among all businesses in y-y terms, down 85.7% to Bt239mn. On a q-q basis, PTA’s EBITDA rose sharply from Bt7mn in 4QCY11. Polyester fiber and wool business was the least volatile among all businesses and accounted for 23.7% of the group’s EBITDA at Bt691mn, down 52.9% y-y but up 51.9% q-q. DOWNBEAT OUTLOOK FOR 2QCY12

Earnings expected to remain weak in 2QCY12 on inventory losses The flood-hit PET plant in Lopburi Province, which has a total production capacity of 180k tons has resumed partial operations in 2QCY12 after last year’s severe floods. The 2QCY12 will also see consolidation of the recently acquired Old World. These factors should help drive 2QCY12 sales volumes up both y-y and q-q. The return of orders to normal levels would keep product spreads steady in q-q terms. However, a sharp correction in oil prices in 2QCY12, which also drags product prices lower, would lead to huge inventory losses in 2QCY12. Historical data showed inventory gains/losses moved in lockstep with oil prices. Based on data between 2QCY11 and 1QCY12, our analysis showed the correlation coefficient between oil prices and stock gains/losses was 0.56. Figure 7: Dubai crude oil price movements vs. stock gains/ losses Sources: Company, Reuters CY12 normalized earnings growth outlook of 22% For CY12, we expect IVL to achieve full-year sales of Bt245,916mn, up 32.1% y-y. We also estimate IVL will deliver a CY12 net profit of Bt12,384mn or Bt2.57 a share, down 20.5% y-y, reflecting huge exceptional gains of Bt5,108mn a year ago. Stripping out ex-items, full-year normalized profit is projected to grow 22% y-y. The forecast assumes EBITDA per ton of US$89, down 30.5% y-y. Sales volume growth would be a key driver of profit growth. Full-year sales volume is forecast to rise 24% to 5.4mn tons from 4.36mn tons a year ago driven by brownfield and greenfield capacity expansion

plan and the recent acquisition of Old World, which would start generating revenue for IVL in 2QCY12 as detailed in Figure 8. Figure 8: Capacity expansion plan and timeline Source: Company VALUATION AND RECOMMENDATION

‘BUY’ rating with CY12 target price of Bt42/share Our CY12 target price of Bt42/share for IVL is DCF-based, assuming WACC of 9.75% and long-term growth of 1.5%. We maintain a ‘BUY’ call on IVL. Sensitivity analysis shows target price will change by Bt7/share for every US$10 change in EBITDA per ton Our sensitivity analysis shows that change in EBITDA per ton will have more impact on target price than change in long-term growth. Every +/- 0.5% change in long-term growth on assumptions that EBITDA per ton is unchanged at US$89/ton will cause target price to change by +/- Bt3/share. On the other hand, every US$10 rise or drop in EBITDA per ton on assumptions that long-term growth is unchanged at 1.5% will cause target price to increase by Bt7.25/share or decrease by Bt7/share respectively.

Oil Dubai and Stock Gain/Loss by Quarter

-40

-20

0

20

40

60

80

2Q/10 3Q/10 4Q/10 1Q/11 2Q/11 3Q/11 4Q/11 1Q/12

Stock G/L (US$/ton) Closing Dubai (US$/Barrel)

Category Project Size Expected Completion

Expansion in Existind Location Indonesia PET Acquisition 101 kton Q2/12

China PET Expansion &CP balancing 116 kton Q2/12

Rotterdam PET Expansion 187 kton Q3/12

Rotterdam PTA Expansion 250 kton 2013

Indonesia Fiber Expansion 300 kton 2013

Poland PET Expansion 220 kton Begin 2014

USA Brownfield PET 432 kton under study

Expansion in other Geographies Nigeria PET Greenfield 84 kton Q2/12

IPL Specialty Fiber 21 kton Q2/Q3 '12

IPL PET Recycling 28 kton 2013

Recycling and Innovation Indonesia Project Finne/ Gas Engine 16 kton 2013

FiberVisions Mono and Bi-Component

Fibers Acquisition 221 kton 5th Jan '12

Cost Savings Auriga DMT to PTA 0 2012

Raw material Integration Projects Old World EO/MEG Acquistion 632 kton 1st April '12

USA Ethylene /EO /MEG under study

PX - Project Greenfield ME under study

PTA/PET/PSF - Project Greenfield India under study


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Figure 9: DCF sensitivity analysis Sources: PST

DCF Sensitivity

Fair Value (Bt/share) EBITDA/ton (US$) 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

79 28.00 30.00 32.25 34.75 37.50 41.00 44.50

89 34.25 36.50 39.00 42.00 45.00 48.75 52.75

99 40.50 43.00 45.75 49.00 52.50 56.50 61.00

Long Term growth rate (%)


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FYE Dec CY08 CY09 CY10 CY11

Valuation Ratios

P/E (X), adj. 132.3 22.2 13.8 13.2

P/B (X) 5.3 4.2 3.8 2.3

EV/EBITDA (X), adj. 29.9 16.5 11.5 8.0

Dividend Yield (%) 0.0% 1.2 2.3 3.5

Per share data (Bt)

EPS, reported 1.65 1.44 2.46 3.29

EPS, adj. 0.21 1.27 2.05 2.15

DPS 0.00 0.33 0.66 1.00

BVPS 5.28 6.70 7.44 12.21

Growth & Margins (%)

Growth

Revenue 74.1 42.9 22.1 96.9

EBITDA 120.9 81.3 43.6 42.9

EBIT 126.7 76.0 56.1 45.3

Net Income, adj. -57.2 1139.4 103.7 17.1

Margins

EBITDA margin 11.0 13.9 16.4 11.9

EBIT margin 8.2 10.1 12.9 9.5

Net Profit Margin 5.5 7.4 11.1 7.9

Key Ratios

ROE (%) 15.0 24.0 38.1 34.2

ROA (%) 3.8 6.7 13.7 13.9

Net Debt-Cash 41,423 38,704 30,586 49,328

Net Gearing(X) 1.8 1.4 0.9 0.8

Income Statement (Bt mn)

Revenue 56,605 80,886 98,764 194,454

EBITDA 6,210 11,256 16,163 23,096

Depreciation & Amortisation 1,567 3,082 3,399 4,554

EBIT 4,643 8,174 12,764 18,541

Net Finance (Expense)/Income (1,467) (1,602) (1,303) (2,370)

Other items 0 0 0 0

Associates & JVs 0 0 1,888 1,315

Profit Before Tax 3,176 6,573 11,461 16,171

Taxation (53) (554) (488) (742)

Profit After Tax 3,123 6,019 10,973 15,429

Non-controlling Interest (467) (1,195) (562) 139

Net Income, reported 2,656 4,824 10,411 15,568

Net Income, adj. 343 4,256 8,670 10,154

Source: PSR est.


8 of 13

FYE Dec CY08 CY09 CY10 CY11

Balance Sheet (Bt mn)

Cash 1,179 1,397 1,483 12,018

ST Investments 257 1,163 542 5,688

Accounts Receivables 8,525 9,963 11,771 24,509

Inventories 7,419 9,674 11,384 21,422

Others 1,455 1,369 965 4,133

Total current assets 18,835 23,566 26,144 67,770

PPE 49,642 49,505 48,820 66,825

Intangibles 968 879 760 4,701

Associates & JVs 0 2,013 5,428

Investments 100 33 20 0

Others 223 277 183 1,102

Total non-current assets 50,933 50,694 51,796 78,056

Total Assets 69,768 74,260 77,941 145,826

Short term loans 14,544 14,697 11,300 20,135

Accounts Payables 6,863 9,004 10,858 17,978

Others 2,373 2,085 1,880 5,088

Total current liabilities 23,779 25,785 24,038 43,201

Long term loans 28,059 25,404 20,769 41,211

Others 223 605 892 2,637

Total liabilities 52,061 51,794 45,699 87,049

Non-controlling interest 4,912 5,287 333 139

Shareholder Equity 17,707 22,466 32,242 58,777


9 of 13

Total Returns Recommendation Rating

> +20% Buy 1

+5% to +20% Accumulate/Trading Buy 2

-5% to +5% Neutral 3

-5% to -20% Reduce/Trading Sell 4

>-20% Sell 5

We do not base our recommendations entirely on the above quantitative return bands. We

consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market

sentiment, recent rate of share price appreciation, presence or absence of stock price

catalysts, and speculative undertones surrounding the stock, before making our f inal

recommendation

Ratings History

Phillip Group Rating System

Remarks

12345

Source: Bloomberg, PSR

0

20

40

60

80

Feb-1

0

Apr-1

0

Jun-1

0

Aug-1

0

Oct-1

0

Dec-1

0

Feb-1

1

Apr-1

1

Jun-1

1

Aug-1

1

Oct-1

1

Dec-1

1

Feb-1

2

Apr-1

2

Jun-1

2

Aug-1

2

Oct-1

2

Dec-1

2

Target PriceMarket Price

PHILLIP RESEARCH STOCK SELECTION SYSTEMS

BUY >15% upside from the current price

HOLD Trade within ± 15% from the current price

SELL >15% downside from the current price

We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors

like (but not limited to) a stock's risk reward profile, market sentiment, recent rate of share price appreciation, presence or

absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final

recommendation

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