[Click eStock] Lotte Chemical, Proactive Buying Strategy Effective

On the 7th, Samsung Securities stated that the proactive buying strategy for Lotte Chemical in the second half of the year remains valid, maintaining a target price of 220,000 KRW and a buy rating.

Researcher Cho Hyun-ryeol of Samsung Securities explained, "Due to recent weak macro indicators in China, overall investment sentiment in the petrochemical industry has worsened. The sharp drop in naphtha prices in May and June negatively impacted second-quarter earnings, but chemical product spreads are gradually improving." He added, "Even without a positive outlook on demand, the large-scale ethylene supply cycle ends this year, so the downward cycle of the industry is expected to conclude around the end of 2023. Accordingly, a buying strategy for the company, which has the highest proportion of ethylene and PE relative to corporate value, remains valid."

Operating profit for the second quarter is expected to turn positive at 8.9 billion KRW, marking a return to profitability after five quarters. However, it is anticipated to fall short of the consensus estimate (81 billion KRW), attributed to negative inventory effects caused by the sharp decline in raw material prices in June.

Regarding the recent CEO NDR held for Asian institutional investors from June 27 to 30, it was analyzed that investor interest was largely divided into three areas: the possibility of a turnaround in the chemical industry, progress in new business ventures, and the potential for additional support to affiliates. Additionally, many showed interest in the timing of the industry's bottom amid the ongoing downward cycle.

Researcher Cho stated, "As the downturn cycle in the Asian petrochemical industry continues into its second year, many investors inquired about the possibility and timing of a cycle reversal." He analyzed, "The company is judged to be currently passing through the market bottom, and expects the recovery of China's real consumption and reduction of supply burdens after 2024 to be the drivers of the cycle reversal."

There was also focused interest on the progress and mid-to-long-term goals of new businesses such as secondary battery materials (copper foil, cathode foil, organic solvents for electrolytes, etc.). The company aims to achieve sales of 12 trillion KRW from three major new businesses by 2030 (with cumulative investments of 10 trillion KRW). This consists of 7 trillion KRW from secondary battery materials, 3 trillion KRW from hydrogen energy, and 2 trillion KRW from the plastic circular economy. Compared to the 2030 guidance set in 2022, secondary battery materials were raised by 2 trillion KRW (from 5 to 7 trillion KRW), while hydrogen energy was lowered by 2 trillion KRW (from 5 to 3 trillion KRW). This reflects the company’s M&A activities and the pace of growth in these industries.

Despite the completion of funding and early repayment for Lotte Construction in 2022, there were many inquiries about the possibility of additional financial support considering the company’s position within the group. Researcher Cho stated, "We believe that most of the risks have been resolved through Lotte Construction’s own fund formation and diversification of PF maturity timings," adding, "Regarding questions about the possibility of additional capital increases, we mentioned that it is not an option under consideration."

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