Lotte Chemical’s 4Q23 losses narrower than expected, still tough year ahead
KUCHING: Lotte Chemical Titan Bhd’s (Lotte Chemical) fourth quarter of financial year 2023 (4QFY23) core net losses (CNL) of RM154 million have come in narrower than expected as it brought its FY23 full-year CNL to RM892 million which was above the expectations of a consensus FY23 CNL of RM1.1 billion.
In a company update report, analysts at Maybank Investment Bank Bhd (Maybank Research) said that the negative variance to its and consensus forecast is due to lower-than-expected tax rates and lower-than-expected sales volume as Lotte Chemical makes losses per unit in its current environment.
It added that the group’s fullyear CNL has been adjusted for RM5.3 million losses on foreign exchange, a RM0.2 million inventories write-off, a RM1.1 million PPE write-off, a RM2.0 allowance on trade receivables, a RM145.9 million reversal of inventories to NRV, and a RM6.5 million fair value gain on derivatives.
While the narrower than expected losses are positive for Lotte Chemical, Maybank research opined that the group’s will continue to register heavy loss-making in 1QFY24 as they note that input naphtha prices have continued to remain flattish since mid-Oct 2023.
“Polymer prices have also been relatively flat – which effectively caps the upside to average selling prices (ASP) in 1Q24.
“And with expectations of still elevated costs coupled with flattish ASPs, we strongly believe that Lotte Chemical’s net loss will still be large in 1Q24, underscoring the fact that the group is not out of the woods,” the research arm added.
Things do not look good for Lotte Chemical in the longerterm as well as its product ASPs are expected to remain weak while its management has guided a suboptimal plant utilisation rate of 65 to 70 per cent in FY24, similar to FY23’s 67 per cent utilisation rate.
With margins expected to remain squeezed and below breakeven across the board, Maybank Research rekconed that FY24 will continue to be a tough year ahead for Lotte Chemical especially as the current macro environment has soft demand for downstream petrochemical products while naptha prices remain elevated.