Mayank.Maheshwari@morganstanley.comYoung.Shin@morganstanley.comTakato.Watabe@morganstanleymufg.comAndy.Meng@morganstanley.comVivek.Rajamani@morganstanley.comAttractiveMORGANSTANLEYASIA(SINGAPORE)PTE.+MayankMaheshwariEQUITYANALYST+656834-6719MORGANSTANLEY&CO.INTERNATIONALPLC,SEOULBRANCH+YoungSukShinEQUITYANALYST+822399-4994MORGANSTANLEYMUFGSECURITIESCO.,LTD.+TakatoWatabeEQUITYANALYST+8136836-5436MORGANSTANLEYASIALIMITED+AndyMeng,CFAEQUITYANALYST+8522239-7689MORGANSTANLEYASIA(SINGAPORE)PTE.+VivekRajamaniRESEARCHASSOCIATE+656834-6740MorganStanleyappreciatesyoursupportinthe2019InstitutionalInvestorAll-AsiaResearchTeamSurvey.Requestyourballot.ASEANEnergyandMaterialsAsiaPacificIndustryViewAsiaChemicalsAsiaChemicals||AsiaPacificAsiaPacificReady,Set&……GO:By2H19,withpolyethylene(PE)cycleturningassupplyaddsslow,AsiaplayersbecomemorecostcompetitiveandPEpricesoutperformethylene.Wethinkthisisunderappreciatedbymarketandcoulddrive30%marginexpansionby2020.Toppicks:SiamCementandLotteChem.Darkestbeforethedawn:ArecoveryinthePolyethylene(PE)cycleisnon-consensus,butweexpectittostartin2H19(seeGlobalInsight-GettingAheadoftheCurve)andleadto~30%upsideforAsianchemicalequitiesasthemarketappreciates:1)theslowdowninpolyethylenecapacityaddsand,moreimportantly,theonceinmanycycles'shiftinsupplytowardsnon-PEproducts;2)risingcostcompetitivenessforAsianplayers;and3)earningsleverageinAsiatothisupcycle.ThesefactorsshoulddriveanearningsupgradecycleforourOWsafternear30%de-ratinglastyear.WeupgradeSCC,PTTGC&PCHEMtoOW.Wherewediffer:Ourbottom-upworksuggestsaPEsupplyglutreductionwitheffectiveglobalutilizationratesabove91%in2020,-acontrasttomarketexpectationofoversupplycontinuing.SupplycouldtightenfasterifChinademandgrowthisaboveourmorebearishexpectations.Keysurprisesinclude:1)Risingcostcompetitiveness:ThecostdynamicforAsianplayersischanging.Naphthacosts,whichfordecadeswerelinkedtooilprices,shouldunderperformagainstoilasrisingsupplyoflightcrudeincreasesavailabilityofnaphthaandmakesAsianplayersmorestructur...
