Bearish sentiment on global economic outlook and the petrochemical industry due to demand-supply imbalance has pulled IVL’s share price down 3% in the past three months vs. the SET’s -6%. While integrated PET spread improved slightly QoQ in 2Q23, we expect persistent inventory destocking in the industry, though much lower than 4Q22-1Q23, to lead to disappointment regarding IVL’s 2Q23F profit, expected flat QoQ. Slower than expected volume recovery in 1H23 also prompts us to revise down our 2023F net profit forecast by 39% to Bt12.6bn (-59% YoY). We cut TP (end-2023) from Bt54 to Bt44 based on 1.3x PBV (-1SD), equivalent to 7.7x EV/EBITDA vs. 10-year average of 11x but maintain our Outperform rating.
2Q23F net profit flat QoQ despite better core EBITDA. We expect IVL’s net profit for 2Q23F (release on Aug 11) to be flat QoQ at Bt1.1bn, less exciting than previously thought. Management guided that destocking in combined PET and IOD segments continued in 2Q23 albeit at a lower magnitude than in 4Q22-1Q23. This kept IVL’s sales volume to a rise of only 7% QoQ (falling 5% YoY) to 3.6mt, vs. an average of 3.8mt/quarter, prior to 4Q22’s destocking. This is equivalent to 76% utilization, down from 80-85% normally.
Core EBITDA/t to remain weak. Integrated PET spread in Asia and EMEA rose 3.5% and 2.9% QoQ. The differential between the two markets was normal at US$219/t, down from an average of US$439/t during logistics constraints in 3Q21-2Q22. The recovery of integrated PET spread seems too modest to boost IVL’s overall core EBITDA/t amidst lower spread from the IOD business, chiefly MTBE: average MTBE spread in Apr-May fell 8.2% QoQ to US$573/t, though remained much higher than 5-year average of US$350/t. In all, we expect IVL’s core EBITDA/t to edge up 0.5% QoQ to US$102/t in 2Q23F.
Better recovery in 2H23 expected. Management guided that sales volume will recover in 2H23 on inventory restocking, though at a smaller scale than normal due to persistent bearish market sentiment.
2023F net profit revised down. With 1H23 earnings performance pressured by industry destocking, we revise down our 2023F net profit forecast by 39% to Bt12.6bn (-59% YoY). This reflects an assumed core EBITDA of US$102/t, down from US$117/t previously. We also cut our sales volume assumption by 4.5% from 15.4mt to 14.7mt, implying utilization rate of 74% vs. 80-85% normally. We continue to see IVL’s competitive position as strong with a lead market share backed by reliable supply. Full-year profit from Oxiteno will be key to earnings on the YoY basis due to strong demand for surfactant and MTBE for gasoline blending. Our TP (end-2023) is revised down from Bt54 to Bt44 based on 1.3x PBV (-1SD), implying 7.7x EV/EBITDA vs. 10-year average of 11x.
Risk factors: 1) weaker demand, 2) less efficiency improvement at new assets than expected and 3) changes in regulations on plastic products.
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