[Click eStock] Lotte Chemical Enters Earnings Surprise Trajectory 'Target Price Up'

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment announced on the 19th that it is raising the target price of Lotte Chemical from 400,000 KRW to 450,000 KRW following an upward revision of earnings estimates by about 25%.

The target price-to-book ratio (PBR) of 1.06 times was applied to the estimated book value per share (BPS) for 2021. The current stock price is at a PBR of 0.7 times and a price-to-earnings ratio (PER) of 5.8 times, which is undervalued considering the entry into a profit normalization cycle. Taking into account the estimated net cash of 800 billion KRW at the end of 2021 and the receipt of insurance money from Daesan NCC (not yet reflected), net cash in 2022 is expected to exceed 2 trillion KRW. This means the company has sufficient financial resources to pursue new businesses such as downstream expansion, M&A related to recycled products, and expansion into eco-friendly/battery materials (separator PE, etc.) as proposed. The debt ratio is only 40%, which is financially very advantageous in terms of expanding various new business opportunities.

Yoon Jae-sung, a researcher at Hana Financial Investment, emphasized, "Considering profit normalization and mid- to long-term growth potential, I am confident that this will be a comfortable investment alternative."

Operating profit for the first quarter is expected to be 530.3 billion KRW (QoQ +150%, YoY turning positive), exceeding the consensus (377.7 billion KRW) by 41%. Operating profit for the second quarter is expected to improve further to 635.2 billion KRW (QoQ +20%, YoY +1,831%). Considering the April PE price increases by US companies LYB and Dow, the April MEG contract price increase by MEGlobal, and low global inventory, a robust market condition is expected to continue. In particular, European PE exceeded 2,000 USD per ton, and the US price is also close to this, widening the price gap with Asia to 600?800 USD. US PP is priced at 2,700 USD per ton, which is 1,200 USD higher than Asia. Due to arbitrage trading, Asian volumes are heading to the US and Europe, which is likely to cause Asian prices to rise accordingly. Considering the potential recovery in clothing demand, improvement in aromatics can also be expected.

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