Russia’s decision to cut off gas supplies to Poland and Bulgaria has led to a panic selloff in Indorama Venture Plc (SET: IVL) shares in recent days, as investors fear the move would have a negative impact on IVL.
Gazprom, Russian state-owned energy giant, announced on April 27 that it had fully halted supplies to Poland’s PGNiG and Bulgaria’s Bulgargaz after they refused to pay in rubles rather than euros or dollars as Moscow demanded.
The European Commission condemned the decision to suspend supplies as an attempt at “blackmail” in response to Western sanctions against Russia over the Ukraine war.
Mr. Suwat Sinsadok, Managing Director of FSS International Investment Advisory (FSSIA), maintains a “BUY” recommendation on IVL with a target price of THB70.00, suggesting that a panic selloff offers a good opportunity to buy ahead of an anticipated record high earnings of IVL in 1Q22 and 2022.
Furthermore, FSSIA expects that the impact of Russian gas supply cuts to Poland on IVL’s operations will be limited, or less than 1%, as Europe generates only 15% of EBITDA, Poland generates 1.55%, and Bulgaria generates none.
Leaving the European market risk aside, FSSIA believes IVL is now poised to achieve record quarterly net profits in 2022, beginning with 1Q22, where a net profit is projected at THB9.1 billion. IVL’s EBITDA is expected to increase from USD1.8 billion in 2021 to over USD2 billion in 2022-23, mainly due to the additional EBITDA generated by the start-up of its ethane cracker in November and the acquisition of Oxiteno’s IOD plant in April.
FSSIA also believes that IVL’s downside risk from the European market is relatively limited and that its profits would see greater growth potential in 2022, on the back of higher margins on integrated PET-PTA in the North American and European markets, as well as solid margins on IOD and fiber products.
