[Click eStock] Lotte Chemical, Valuation Dropped to Financial Crisis Level

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment maintained its 'Buy' rating on Lotte Chemical on the 8th but lowered the target price to 360,000 KRW. This reflects a 12% downward revision of the 2022 estimates, yet it is judged that the stock still has a high upside potential of 64%.

Yoon Jae-sung, a researcher at Hana Financial Investment, stated, "The company is actively engaged in ESG enhancement activities through large-scale investments in EV separator materials, chemical recycling PET production, and green hydrogen projects in Sarawak, Malaysia," emphasizing, "The current PBR of 0.48 times does not reflect these proactive efforts at all."

The third quarter operating profit was 288.3 billion KRW (QoQ -52%, YoY +49%), falling 33% short of the consensus (431.7 billion KRW). Despite cost burdens from rising oil and naphtha prices, demand was sluggish due to the resurgence of COVID-19 in Southeast Asia, leading to margin declines in all business units except LC USA.

The fourth quarter operating profit is expected to improve to 363.6 billion KRW (QoQ +26%, YoY +71%). This is due to the stabilization of raw material input costs and the easing of COVID-19 in Southeast Asia, despite regular maintenance of advanced materials/aromatics/LC USA.

Considering the sharp rise in energy costs due to soaring electricity prices in China, the Chinese Development and Reform Commission's order to shut down zombie ethylene facilities under 300,000 tons, and the continued possibility of coal-based chemical facility regulations, the supply burden in 2022 is expected to be lower than anticipated. This is the key basis for forecasting a 2022 operating profit of 2.1 trillion KRW (YoY +14%).

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