Indorama Polymers – IRP - BUY
Target price : Bt10
Recommendation : BUY
Closing Price (15 May 09) : Bt8.15
1Q09 profit up YoY and QoQ
- First-quarter normalized profit surged 115.6% from the same year-ago quarter and improved significantly from the prior quarter.
- Sales volume was up both YoY and QoQ. Spreads were up YoY but down QoQ.
- We up our 2009 net profit forecast for IRP by 16.9% and raise our 2009 price target to Bt10/share. We reiterate a BUY opinion on IRP.
1Q09 normalized profit surges 115.6 YoY and sharply improves QoQ
IRP racked up sales of Bt10,062m in 1Q09, up 41.2% YoY but flat QoQ. Net profit for the quarter came in at Bt681m or Bt0.49 a share, down 41.5% YoY but up 111.8% QoQ. In this quarter, IRP booked a FX gain of Bt126m, reversing a year-ago loss of Bt28.6m. The sharp decline in net profit reflected exceptional gains in 1Q08 and the Bt934m in negative goodwill from plant acquisitions last year. Stripping out the FX effect and ex-items, first-quarter normalized profit grew as much as 115.6% YoY and improved significantly from Bt5.2m in the prior quarter.
Sales volume up both YoY and QoQ; spread up YoY but down QoQ
Spreads were up 11.5% YoY but down 13.8% QoQ to US$232/ton. Solid operating profit growth on a YoY basis was chiefly credited to strong sales volume growth of 83.4% YoY and 10.8% QoQ to 249,833 tons. European plants contributed 61.22% of the total sales. Sales from European operations rose the most among others, up as much as 185.7% YoY and 18.5% QoQ following acquisition of two PET polymers plants in Europe in late 1Q08. US plants contributed 21.87% of the total sales. Sales from US operations were up 12% YoY but down 4.6% QoQ as a result of economic slowdown. On a QoQ basis, strong profit growth contributed to lower inventory write-downs of Bt88m in this quarter, down sharply from Bt831m in 4Q08.
2009 net profit estimate revised up by 16.9%, 2009 price target lifted to Bt10/share, BUY rating
We raise our 2009 spread outlook by 7.1% or US$15/ton to US$225/ton. The revision prompts us to revise our 2009 net profit forecast by 16.9% from Bt1,563m to Bt1,827m, or Bt1.32 a share, up 18.46% YoY. We also lift our 2009 price target to Bt10/share from a previous price estimate of Bt6.80/share. The new target is based on a P/E of 7.5x, equivalent to a PEG of 0.4x and a P/BV of 1.63x. The price target upgrade reflects: (i) a 16.9% increase in 2009 net profit forecast and (ii) an increase in target P/E to 7.5x from 6x. We reiterate a BUY opinion on IRP.
By Phillip Securities (Thailand) Plc. on May 18, 2009
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