[Click eStock] "Lotte Chemical, Q3 Operating Loss Larger Than Expected... Target Price Downgraded"

[Asia Economy Reporter Hwang Yoon-joo] DB Financial Investment analyzed on the 12th that Lotte Chemical's operating loss in the third quarter is expected to be larger than anticipated. Accordingly, the investment opinion 'Buy' was maintained, but the target price was lowered to 220,000 KRW.

Han Seung-jae, a researcher at DB Financial Investment, stated, "The operating loss in the third quarter will significantly underperform the market consensus (-42.3 billion KRW)."

Researcher Han explained, "Firstly, the naphtha price dropped from $823 per ton in June to $662 per ton in September, causing a significant lagging effect. Additionally, the continuation of China's zero-COVID policy and intensified concerns over global economic slowdown have led to extreme weakness in the spreads of major products."

Meanwhile, regarding the acquisition of shares in Iljin Materials, it was evaluated as an 'investment for a leap during a recession.' Lotte Chemical previously decided to acquire 53.3% of Iljin Materials' common stock and 5 million new share subscription rights of IMG Technology for 2.7 trillion KRW. The share acquisition is expected to be completed by February next year.

Researcher Han said, "There may be controversy over the acquisition price, but the stock price has already declined reflecting the acquisition premium," adding, "Going forward, more focus should be placed on the growth of Lotte Chemical's battery business division."

He further predicted, "The controversy will subside over time as this can become a pillar of sustainable profit growth in the future, rather than a 2-3 year capital gain."

He continued, "For now, the turnaround of the core business is more important," and assessed, "Since demand factors are a bigger issue, it is difficult to predict the timing of a short-term rebound, but compared to the financial crisis (fwd P/B 0.33x) and COVID-19 (fwd P/B 0.29x), further decline will be limited."

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