[Click eStock] "Lotte Chemical, Market Expected to Strengthen as Vaccine Vaccination Rate Increases"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a buy rating on Lotte Chemical on the 9th. This decision was based on the expectation that if vaccination rates increase in the Asian market, the stock price could be re-evaluated, considering the favorable petrochemical market conditions in the US and Europe.

Lotte Chemical's operating profit in the second quarter was 594 billion KRW, a 1706% increase compared to the same period last year, aligning with market expectations (599 billion KRW). Considering that about 56 billion KRW of opportunity loss from the regular maintenance of Daesan NCC was reflected, this represents solid performance. Although the olefin business and Titan Industrial segment saw profit declines due to rising naphtha prices and weak margins in PE, PP, and MEG, the aromatic and Lotte Advanced Materials segments saw profit increases influenced by the peak season for PET and PIA and rising ABS prices.

Operating profit for the third quarter is expected to be 478 billion KRW, a 147% increase from a year ago. This is based on rising naphtha input costs and weakness in PE, PP, and MEG. Jaesung Yoon, a researcher at Hana Financial Investment, said, “The stock price has already fallen 20% from its peak, reflecting the expected profit decline in the third quarter,” adding, “Considering low inventory levels, stockpiling activities ahead of the year-end season, and the possibility of a market rebound, a stock price recovery is not far off.”

Given the strong petrochemical market conditions in the US and Europe, where vaccination rates are high, the Asian market outlook can be inferred. Considering the expansion of vaccination rates and increased disposable income in Asia, the favorable global petrochemical market conditions are unlikely to end in the short term. US refining company LyondellBasell Industries (LYB) announced that PE orders in August reached record levels, and due to shortages in both the front end and their own inventory, they plan to continuously raise PE prices through the end of the year. PP is understood to be even tighter in supply and demand than PE, with contracts being made based on allocated quantities.

Researcher Yoon said, “The favorable market conditions in the US and Europe are unlikely to end soon,” and “As various supply chain bottlenecks are gradually resolved and vaccination rates rise in Asia, a strong rebound in the petrochemical market is expected.”

It is also positive that large-scale investments in the hydrogen business and green projects such as mobility, battery, and plastic recycling investments are becoming concrete. Researcher Yoon said, “Considering the possibility of a market rebound and the company’s efforts for growth, a 12-month forward PBR of 0.6 times is too harsh.”

This content was produced with the assistance of AI translation services.