HLIB: Limited downside risk for Lotte shares

PETALING JAYA: Shares in Lotte Chemical Titan Holding Bhd, which have fallen by almost a third since the company went public barely a month ago, may have found a technical bottom.

One research house said the selling pressure on Lotte Chemical may have climaxed on Aug 1, but stopped short of calling an outright “buy” on the stock.

Lotte Chemical’s share price closed two sen lower yesterday at RM4.40, which was 32% lower than its initial public offering (IPO) price of RM6.50. The company was listed on July 11.

“Downside risks are limited, as values emerge after the recent sell-off,” said Hong Leong Investment Bank (HLIB) Research in a note yesterday.

The firm said that if Lotte Chemical could hold near its immediate technical support of RM4.34, the counter had the potential to recover towards RM4.90, which is HLIB Research’s long-term target price for the stock.

Based on its trading chart, HLIB Research said the stock was due for a “technical rebound.”

On the flip side, the research house said if the stock continued to head lower, then it suggested that its clients prepared for stop loss at RM4.20.

A breakdown below RM4.34, said HLIB Research, would witness a resumption of the previous selldown to RM4.25, which was its lowest point on Aug 2. The stock could fall further to RM4.14.

Lotte Chemical’s share price came under pressure after the company on Monday said its net profit in the second quarter ended June 30 had plunged 72% to RM113.6mil.

HLIB Research said that at the current price, Lotte Chemical shares were trading at nine times their financial year ending Dec 31, 2019 price earnings ratio (PE), which is based on 48.6 sen earning per share.

“This is lower against its peers like Petronas Chemicals Group Bhd at 15 times PE and Taiwan-based Formosa Chemical & Fibre at 13 times,” it said.