Lotte Chemical expected to be profitable in H2

PETALING JAYA: Lotte Chemical Titan Holding Bhd (LCTH) is likely to be profitable in the second half of this year (2H20) given the product spread is still healthy and profitable for the group, Maybank IB Research said.

The brokerage said although the polymer spread fell from its peak of US$640 per tonne in end-march, the present spread of US$550 per tonne is “still profitable” for LCTH.

“We think the spread could gradually soften from August on lower plant turnaround activities in the region and China-led new supply.

“Additionally, plant utilisation rate in the second half of this year would be stable at around 85%. The next turnaround activity will take place in July 2021,” it noted.

Meanwhile, Maybank IB Research expects that LCTH’S earnings for the third quarter ending Sept 30, 2020 (3Q20) be weaker quarter-on-quarter in the absence of the substantial inventory write-back.

“We maintain our earnings forecasts for the financial years (FY) ending Dec, 31, 2020, to 2022 and expect a profitable 2H20 as the present spread is still healthy.

“Our target price is retained at RM2.10, which is based on an unchanged two times enterprise value to earnings before interest and taxes based on FY21,” it said.

The core net profit for 2Q20 was Rm150mil excluding the unrealised forex loss of Rm63mil, which was a sharp rebound from core net loss of Rm222mil in 1Q20.

“This brought 1H20 core net loss to Rm72mil and was within our forecast as we expect a profitable 2H20,” Maybank IB Research said.

Meanwhile, the research house is keeping a “hold” call on Lotte as the near-term earnings could be unexciting, but the stock has deep value with its FY21E price-to-book value ratio at 0.4 times.