Lotte Chemical Titan encountered ongoing challenges in the second quarter of 2024, with substantial losses continuing despite efforts to address the issues, according to reports by Maybank Investment Bank (Maybank) and CGS International Stock Broking House (CGS). The company's financial outlook remains dire, with no immediate relief in sight due to unfavourable polyethylene (PE)-naphtha spreads and persistently weak market conditions.
Maybank maintained its SELL rating on Lotte Chemical Titan, setting an unchanged target price (TP) of RM0.94. The bank highlighted the company's continuing financial struggles and the adverse impact of the current market dynamics on profitability. CGS also reiterated its REDUCE rating, reflecting the tough market conditions and challenging outlook for the company. CGS's TP for Lotte Chemical Titan remains at RM0.93, based on a price-to-book value (P/BV) of 0.2x, indicative of trough valuation levels similar to those during the Covid-19 pandemic.
Lotte Chemical Titan reported a core net loss of RM209 million in 2Q24, which was comparable to the RM203 million loss recorded in 1Q24. The cumulative core losses for the first half of 2024 totalled RM411 million, aligning broadly with the forecasts from Maybank and consensus estimates for the full year. These losses were adjusted for various factors including net foreign exchange losses and inventory write-downs. The company's production volume fell by 27% quarter-on-quarter (QoQ) in 2Q24 due to the turnaround of a naphtha cracker and associated downstream units, exacerbating the financial difficulties.
CGS noted that Lotte Chemical Titan's ongoing struggles are exacerbated by high interest costs and a ballooning debt burden, which rose to RM7.6 billion as of June 2024, up from RM1.1 billion a year earlier. The company's Lotte Chemical Indonesia New Ethylene (LINE) project, while promising, is anticipated to increase financial pressures further with its associated depreciation and finance costs. The project's completion is scheduled for mid-2025, and it is expected to significantly impact the company's earnings.
Maybank anticipates that Lotte Chemical Titan will face similar levels of losses in 3Q24, with no immediate signs of recovery. The slight easing of naphtha prices has not been enough to offset the challenges posed by flat polymer prices and elevated naphtha costs. CGS further added that the company's operational disadvantage compared to competitors, such as those integrated with upstream refinery operations, continues to weigh heavily on its performance.
The company's ongoing losses and adverse market conditions suggest limited potential for improvement in the near term, making it a less attractive investment opportunity in the current environment.
