[Click eStock] "Lotte Chemical, Deficit Expected to Continue in 2025... Target Price Down"

Target Price Lowered from 140,000 KRW to 100,000 KRW
Ongoing Oversupply and Weak Demand in Petrochemical Market
Potential Rebound with China Economic Stimulus and Oil Price Stabilization

On the 8th, iM Securities downgraded Lotte Chemical's target stock price from 140,000 KRW to 100,000 KRW. This is due to the expectation that oversupply and weak demand in the global petrochemical market will persist, and the ROE (Return on Equity) generation is forecasted to be negative for three consecutive years.

According to iM Securities, during the three-year downcycle, Lotte Chemical's financial structure significantly deteriorated, leading to a sharp increase in borrowings. In 2023, a paid-in capital increase worth approximately 1.2 trillion KRW diluted the value of existing shareholders. Additionally, the possibility of early redemption of about 2 trillion KRW in corporate bonds by the end of the year was mentioned, which greatly dampened investor sentiment.

They expect the business conditions to improve from the second half of 2025. The petrochemical industry is anticipated to gradually recover starting from the bottom in 2024. There are three main factors. First, the reduction in new NCC (Naphtha Cracker) capacity expansions and the visible effects of restructuring by some companies may alleviate the oversupply issue. Second, China's government stimulus policies, including interest rate cuts and easing of real estate regulations, are expected to lead to domestic demand recovery and increased consumption. Third, crude oil prices, which were around $7,090 in 2024, are likely to stabilize at approximately $6,070 in 2025, positively impacting NCC companies like Lotte Chemical by reducing their cost burdens.

For the fourth quarter of 2024, the company's operating loss is expected to be 211.3 billion KRW, which represents a slight reduction in the deficit compared to the previous quarter. This improvement is mainly due to the disappearance of about 140 billion KRW in one-time costs caused by LCUSA facility maintenance and increased maritime freight rates. However, the reduction in losses in the basic petrochemical segment is not as large as expected, and losses at LC Titan continue, which may result in performance falling short of market expectations (-147.5 billion KRW). On an annual basis, an operating loss of 871.3 billion KRW is inevitable for 2024, marking the third consecutive year of losses, with a further loss of 128.7 billion KRW expected in 2025.

However, as the year progresses, the decrease in capacity expansions and the cumulative effects of China's economic stimulus policies are expected to improve supply-demand balance, and cost burdens are likely to ease due to crude oil price stabilization. Accordingly, the company's performance is expected to show a pattern of lower results in the first half and improvement in the second half, with the annual performance in 2025 likely to be better than in 2024.

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