Global Chemicals:The polyester trade;EM stocks driven by DM capacity

    M&G Chemical (not listed) plans to start up its Corpus Christi plant
in the US laterthis year, adding annual capacity of 1.1mn tons of PET
and 1.3mn tons of PTA,representing increments of c25% and 28%
respectively to the existing capacity base– in a market that grows
demand at c2-3%. Growth of that scale has the potential tobe very
negative for operating rates and for margins in North America. Potential
startupdelays, import substitution and potential capacity closures are
all likely to mitigateany negative impact from the plant, but it still
represents a lot of volume and willimpact prices. We expect eventual
import parity pricing, a potential downside ofcUSD50-60/ton from current
levels.

PET capacity expansions likely to disrupt North American market.

Global Chemicals:The polyester trade;EM stocks driven by DM capacity。    IVL is more integrated, but the valuation spread is unwarranted.

股市新闻,    With a similar North American footprint, we think that Alpek’s
discount to both itshistorical average and to IVL, its closest global
peer, fails to take into account severalpositive catalysts. Alpek
delivers a higher 2018e FCF yield (5.8% vs 3.0%), ROIC(12.0% vs 8.2%)
and dividend yield (5.2% vs 1.9%), all while offering both
growth(through acquisitions) and partial integration.

    Of the listed EM names, Alpek and Indorama are among the largest
global PET/PTAproducers with a very strong North American footprint,
with M&G being the thirdlargest major player. IVL derived 46% of its
2016 EBITDA from North America, whileAlpek derived about 58% of its 2016
EBITDA from North American polyester. Wequantify the impact of a
USD50/ton decline in PET spreads as being equal to 16% ofEBITDA for
Alpek and 22% for IVL.

    Impact on the emerging market (EM) listed polyester names.

    We prefer Alpek (ALPEKA.MX, CP MXN22.17, Buy, TP MXN32) over IVL
(IVL.BK,CP THB39, Reduce, TP THB29, up from THB26 on higher earnings
estimates).

    Despite broadly similar risks from new supply, Alpek and Indorama’s
stockperformance has been widely divergent over the past year. Valuation
spreads havewidened since 2Q16 and have not corrected – with IVL trading
at 2.7 turns aboveAlpek’s 12M FWD EV/EBITDA. IVL is more integrated than
Alpek in North America,but we see this valuation premium as
unwarranted.

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