The share price of Indorama Ventures Public Company Limited (IVL) on August 22, 2019, plunged ฿3.00/share or 8% with a trading value of 1,926 million baht as yesterday was the day prior to the ex-dividend date.
Today, August 23, 2019, KTBST has reiterated BUY rating on IVL with an unchanged target price of Bt44.00 (28% upside), which implies EB/EBITDA of 9.5x (7-yr average level). KTBST’s target price has yet factored in Huntsman that would add value of Bt2.00-4.00/share to IVL.
KTBST states that it has become increasingly positive about IVL’s earnings outlook following the guidance at an analyst meeting yesterday. IVL’s management said an acquisition of Huntsman will reduce volatility in gross profit margin given a cost advantage and an expansion in EOD business.
KTBST estimates Huntsman’s EBITDA of USD320mn, while IVL would reap synergy benefit worth approximately USD100mn. The share price also looks inexpensive after it has declined 34% over the past 12 months to trade at -2 SD 7-yr average EB/EBITDA, which is the same level seen in 2014-2015 when EBITDA margin was at 6-9%.
Thus, KTBST views the current share price as an opportunity to increase position given EBITDA margin of 10% currently with a possible increase to 12-13% after the acquisition of Huntsman.
The target price of KTBST remains unchanged at Bt44.00, which implies EV/EBITDA of 9.5x, or 7-yr average level. The acquisition of Huntsman will add the value of Bt2.00-4.00/share to the target price. However, the downside risk to the forecast will be a narrower petrochemical spread given an overhanging US-China trade tension.