Tariffs And Footprint Optimization Will Drive Stronger Margins And Earnings Ahead

Catalysts

About ALPEK. de

ALPEK. de is a petrochemical company focused on polyester, plastics and chemicals, serving core packaging and industrial end markets worldwide.

What are the underlying business or industry changes driving this perspective?

• New U.S. reciprocal tariffs on imported PET resin and rPET are expected to reduce low cost Asian imports and support a more rational pricing environment, potentially lifting volumes and strengthening Polyester segment revenue and EBITDA from 2026 onward.
• Footprint optimization through permanent closure of higher cost sites and targeted debottlenecking projects is set to streamline operations, with the goal of structurally lowering unit costs and improving net margins as volumes recover.
• Stable North American demand and through cycle returns in polypropylene and EPS, combined with improving regional margins, position the Plastics and Chemicals segment to prioritize resilient free cash flow conversion and support stronger consolidated earnings.
• Discipline in working capital and CapEx, together with divestiture of noncore assets, is already enhancing operating free cash flow, which may support deleveraging and reduce interest expense, with the potential to boost net income over the next few years.
• The merger of Controladora Alpek with Alpek and the potential inclusion in major Mexican equity indexes is expected to broaden the shareholder base, lower the cost of capital and facilitate funding for projects targeted to earn high returns, with the aim of amplifying future earnings growth.

Assumptions

This narrative explores a more optimistic perspective on ALPEK. de compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming ALPEK. de's revenue will grow by 8.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -2.1% today to 4.8% in 3 years time.
• The bullish analysts expect earnings to reach MX$8.2 billion (and earnings per share of MX$2.97) by about December 2028, up from MX$-2.8 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as MX$3.2 billion.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 8.3x on those 2028 earnings, up from -7.8x today. This future PE is lower than the current PE for the MX Chemicals industry at 42.6x.
• The bullish analysts expect the number of shares outstanding to decline by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.85%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent global oversupply in Polyester and key chemicals, coupled with very low Asian reference margins and structurally low ocean freight rates, may keep industry pricing depressed for longer than expected and limit Alpek's ability to grow revenue and expand net margins.
• High leverage of 4.0 times net debt to EBITDA and a slower than anticipated recovery in earnings could constrain balance sheet flexibility, force prolonged dividend suspension and delay strategic investments, which could weigh on future earnings growth and valuation multiples.
• Footprint optimization that relies on plant closures and non core asset divestitures may yield lower than expected proceeds or take longer to execute, while extraordinary restructuring costs continue to weigh on EBITDA and delay a meaningful improvement in net margins and free cash flow generation.
• Expected benefits from U.S. reciprocal tariffs on PET imports may be smaller or slower to materialize due to legal challenges, weak end market demand and the need to absorb previously heavy Asian imports, which would reduce the anticipated uplift in volumes, revenue and EBITDA from 2026 onward.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for ALPEK. de is MX$19.0, which represents up to two standard deviations above the consensus price target of MX$14.29. This valuation is based on what can be assumed as the expectations of ALPEK. de's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$19.0, and the most bearish reporting a price target of just MX$10.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be MX$170.4 billion, earnings will come to MX$8.2 billion, and it would be trading on a PE ratio of 8.3x, assuming you use a discount rate of 19.8%.
  
• Given the current share price of MX$10.43, the analyst price target of MX$19.0 is 45.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.