Fire incident has minor impact on Lotte

Product volume and earnings of the company may be 3% lower

PETALING JAYA: Integrated petrochemical producer Lotte Chemical Titan Holding Bhd’s recent fire incident is expected to have a minor and contained impact on the company’s operations, according to Maybank Investment Bank (IB) Research.

The incident at one of Lotte’s plants in Pasir Gudang on Sept 20 has affected the company’s share price, which lost nearly 20 sen or 3.5% to RM5.29 on the same day.

The counter continued to drop to RM5.04 yesterday, but it has since improved to RM5.25 at the close of trading.

This was the second time that Lotte has been affected by an incident this year leading to disruptions in its operations. In April, the company was similarly affected, following a water disruption that led to the shutdown of its facilities for three days.

Maybank IB Research indicated that the fire incident could lower Lotte’s product volume and earnings by 3% compared with its initial base forecast in a worst-case scenario. The research house added that the risk-reward of Lotte remained attractive, despite the fire incident.

“We recommend that investors look past this incident and reiterate our ‘buy’ recommendation on Lotte. We are confident that Lotte would be able to resolve this issue within this year and our 2018 earnings forecast remains intact. Such an incident could easily scale back the schedule by up to three months.

Assuming the worst-case scenario of a three-month delay, the plant would only commence operations in January next year,” said the research house in a note, adding that it has retained the target price of RM7.85 per share.

According to Maybank IB Research, such incidents are frequent and common during the commissioning and start-up phase in the petrochemical industry.

In a filing with Bursa Malaysia yesterday, Lotte confirmed that a small fire had broken out at the site of the company’s TE3 project, but with no impact on production.

“No one was injured in the incident and the company is assessing the financial impact from the incident,” it added.

The TE3 project refers to Lotte’s KBR catalytic olefins technology catalytic cracking reactor that will be attached to an existing second naphtha cracker plant in Pasir Gudang, Johor. The project’s estimated commercial start-up will be by the fourth quarter of this year.

Maybank Investment Bank was one of the joint-global coordinators for Lotte’s initial public offering in July.

We recommend that investors look past this incident and reiterate our ‘buy’ recommendation on Lotte. Maybank Investment Bank Research