Production volume boost to lift Litte Chemical’s earnings in 3Q

KUCHING: Lotte Chemical Titan Holding Bhd’s (Lotte Chemical) third quarter (3Q) earnings is expected to be lifted by a production boost driven by smooth resumption of Naphtha Cracker #1 (NC1) plant and higher plant utilisation rates.

Maybank Investment Bank Bhd (Maybank IB Research) in a recent report, pointed out that things are reverting back to normal for LCT following a series of hiccups seen during the year.

“Management guides that production volumes have gradually recovered from the low levels in 2Q17.

“The NC1 turnaround process was completed as planned and the ramp-up process was smooth. In total, NC1 was off line for 33 days only and we forecast plant utilisation rates to hover between 74 to 78 per cent.

“We forecast that product margins in 3Q17 was at RM994 per tonne (down 10.7 per cent yearon-year, down 6.5 per cent quarteron-quarter); this is a respectable number despite the lower y-o-y and q-o-q,” it said.

As for the TE3 incident which affected LCT earlier this month, Maybank IB Research believed that TE3 should not impact LCT’s 3Q17 financials as its capital expenditure ( capex) and incidential costs should be capitalised till ready.

Of note, earlier this month, LCT was asked by the Department of Environment ( DoE) to stop work on its KBR Catalytic Olefins Technology catalytic cracking reactor within the TE3 project site in Pengerang, Johor.

However, the DoE had later lifted its stop- work order on the project after the company had satisfactorily completed the requested remedial actions.

“Management remains confident that they will be able to commission TE3 by 4Q17 as per the original targets and all these incidents are minor hiccup to their overall progress,” Maybank IB Research said.

Overall, the research house pegged a ‘buy’ call on the stock as it is the cheapest Asean-based petrochemical company, based on enterprise valuation per earnings before interest, tax, depreciation, and amortisation and profit per book value measure.

“Based on these attractive valuations and coupled with respectable dividend yields, we advocate accumulating LCT shares,” it added.