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On Monday, an analyst from JPMorgan shifted their stance on Indorama Ventures Public Company Limited (IVL:TB) stock, upgrading it from Neutral to Overweight. The price target was adjusted to $23.00, a decrease from the previous target of $26.00.
The analyst noted that Indorama Ventures' shares had underperformed the SET index by approximately 30% year-to-date, attributing the decline to weak integrated PET margins and the potential for impairments due to asset rationalization ahead of the company's IVL2.0 strategy.
Indorama Ventures reported second-quarter 2024 core earnings of Bt1.5 billion, a 16% decline quarter-over-quarter, which was in line with the firm's expectations. The company also recorded an impairment of approximately Bt24 billion, net of tax, for its high-cost PET/PTA assets.
The analyst predicts that improvements in fixed costs, utilization rates, and a recovery in the Indovinya segment's performance will likely lead to better core earnings from the second half of 2024 onwards.
The firm forecasts a gradual recovery in Indorama Ventures' core EBITDA to roughly $1.6-1.8 billion in fiscal years 2025 and 2026, representing an approximate 12% compound annual growth rate from an estimated $1.4 billion in fiscal year 2024. These projections are based on expectations of a sales volume recovery and cost optimization, with only a limited recovery in spreads assumed.
Despite the PET-PTA industry facing challenges, with integrated spreads currently less than $150 per ton compared to a mid-cycle level of over $200 per ton, JPMorgan anticipates that the stock may recover some of its recent losses in the second half of 2024. This potential rebound is expected due to the anticipated earnings recovery and the elimination of the impairment overhang.
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