[Click eStock] Lotte Chemical, Turning Point for Possible Q3 Profitability Reversal

Yuanta Securities announced on the 14th that it maintains a buy rating and a target price of 310,000 KRW for Lotte Chemical. This is based on the judgment that the company has reached a turning point with China's economic stimulus, a return to operating profit in the third quarter, and a reduction in the burden of global capacity expansion.

The operating loss, which started with a deficit of 21.4 billion KRW in the second quarter of last year, went through the worst periods with a loss of 423.9 billion KRW in the third quarter (the worst quarter) and 400 billion KRW in the fourth quarter. This year, the deficit narrowed to 26.2 billion KRW in the first quarter and 77 billion KRW in the second quarter.

Hwang Gyu-won, a researcher at Yuanta Securities, analyzed, "The expected operating profit for the third quarter is 58 billion KRW, indicating a possible return to profitability after five quarters. The effect of low-cost raw material input influenced basic petrochemical products, and China's economic stimulus policy has positively impacted specialty materials."

He continued, "The raw materials used in the NCC (Naphtha Cracking Center) facilities are approximately 70% naphtha and 30% LPG, with international prices in June and July at $560 and $430 respectively, representing a 15% and 34% drop compared to the first half of the year. Considering a one and a half month input lag, we can expect profit growth effects until early October," he pointed out. He also forecasted, "Advanced materials (ABS, PC) used in IT materials and paint raw materials, as well as Lotte Precision (ECH, etc.), will continue to generate quarterly profits exceeding 100 billion KRW."

The price-to-book ratio (PBR) fluctuated between 0.3 and 1.4 times (average 0.7 times). The combination of three negative factors?weak demand in China, large-scale new capacity expansions, and high oil prices?has pushed the PBR to its bottom. Researcher Hwang noted, "The PBR fell to around 0.35 times in September 2023, which I believe is an abnormally low valuation."

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