Lotte Chemical Titan Holding Bhd’s (Lotte Chemical) core net loss is wider than expected for 3Q23, and its FY23E result could be the group’s worst year on record, says Maybank Investment Bank Berhad (Maybank IB).
In its report today (Oct 27), the research house said the group’s product ASPs across the board look to remain weak.
“Management has been aggressively lowering its plant utilisation guidance (now to 65-70% for FY23, from 75-80% in Apr 2023) as margins remain squeezed and below breakeven across the board.
“With soft macro climate for downstream petrochemical products, coupled with elevated naphtha prices (due to the high crude oil price environment), we think that FY23E could be Lotte Chemical worst year on record,” it said.
Maybank IB maintains its SELL call and its TP trimmed marginally to RM0.83, down 1 sen, based on an unchanged FY24E P/B of 0.15x, reflecting trough historical P/B as we expect record losses in FY23E, and as 3Q23 performance came in below expectations.
“We cut FY23-25E core earnings to -RM1.1 billion, -RM723 million and +MYR76 million respectively, from -RM1.0 billion, -RM701 million, +RM176 million) to reflect lower association contribution.
“This is also due to lower blended utilisation rate of 67%,70%,70% from 70%,75%,75% respectively and lower ASP assumptions.”
The research house said accounting for a 6-week lag, input naphtha prices (based on the Naphtha Japan Index) have risen 14% from mid-July till mid-Oct 2023.
“Meanwhile, polymer prices have been relatively flat (due to soft regional demand and excess supply of polyolefins) – which effectively cap the upside to ASPs throughout 4Q23.
With the expectations of heightened costs coupled with flattish ASPs in 4Q23, we think LCTITAN’s net losses will expand again in 4Q23, underscoring the fact that the group is not yet out of the woods,” it said.
Risks to call for Maybank IB’s earning estimate, target price and SELL rating which include a faster-than-expected recovery
in polymer and monomer prices and a sudden decline in crude oil and naphtha prices.
