[Click eStock] "Lotte Chemical, Stock Price Decline Inevitable After 1.1 Trillion Won Capital Increase Announcement"

Hi Investment & Securities Report

[Asia Economy Reporter Minji Lee] Hi Investment & Securities lowered the target price for Lotte Chemical, which announced a paid-in capital increase plan amounting to 1.1 trillion KRW on the 21st, to 210,000 KRW. This is 27% lower than the previous estimate, while maintaining a buy rating.

Recently, the company disclosed a paid-in capital increase plan of 1.1 trillion KRW through a rights offering followed by a general public subscription for forfeited shares. The increase ratio is approximately 24.8%. Of the funds raised through this capital increase, about 600 billion KRW will be used to acquire shares of Iljin Materials, and the remaining 500 billion KRW will be allocated for operating funds such as naphtha purchases.

The target amount of 1.1 trillion KRW to be raised through this capital increase is based on the initial issuance price of 130,000 KRW. The final issuance price will be determined as the lower of 130,000 KRW and the second issuance price (to be calculated on January 16 next year), so the final amount raised may fall short of 1.1 trillion KRW.

Despite a decline in cash generation from the core business due to global demand slowdown and large-scale capacity expansions causing continued weakness in the petrochemical industry, the company now requires a large-scale fund of 2.7 trillion KRW for the acquisition of Iljin Materials. Meanwhile, financial support of about 900 billion KRW was also provided to Lotte Construction, whose operating conditions worsened due to a shrinking project financing market and rapid interest rate hikes, significantly increasing the company’s financial burden.

Yujin Jeon, a researcher at Hi Investment & Securities, said, “The purpose of the capital increase should be seen as a result of increased financial burden due to various internal and external factors rather than securing mid- to long-term growth engines through the acquisition of Iljin Materials.” She added, “The reasons include weakened profit generation from the core business, large-scale mergers and acquisitions, and financial support for affiliates.”

With this decision, a short-term stock price adjustment is inevitable. However, considering that the situation is unlikely to worsen further, the buy rating is maintained. Researcher Yujin Jeon stated, “The announcement of the paid-in capital increase has resolved the market’s concerns about funding uncertainty for the time being, and the market conditions are expected to gradually recover, bottoming out in the first half of next year.” She continued, “Considering the trend recovery of the oil market due to China’s strong stimulus measures, a long-term buying strategy looking toward the second half of next year will be necessary.”

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