[Click eStock] "Lotte Fine Chemical Expected to Benefit from Rising Ammonia Prices... Target Price Raised"

Target Price Raised from 62,000 Won to 63,000 Won

On March 16, IBK Investment & Securities raised its target price for Lotte Fine Chemical from 62,000 won to 63,000 won, citing anticipated indirect benefits from rising ammonia prices. The investment opinion remains 'Buy'.

Urea and ammonia are reacting most sensitively to issues in the Strait of Hormuz because nitrogen-based fertilizers are directly linked to gas and ammonia supplies from the Middle East. While urea trading volumes have declined due to both delayed Indian tenders and concerns over supply disruptions from the Middle East, offer prices have surged. Ammonia is also experiencing simultaneous upward pressure across Asia, Europe, and the Americas. Dongwook Lee, a researcher at IBK Investment & Securities, explained, "In particular, ammonia is affected by high gas prices in Europe, production disruptions in Trinidad, and scheduled maintenance in Indonesia, leading to a rapidly tightening global nitrogen supply-demand balance."

In this situation, it is important to note that Lotte Fine Chemical functions more as a domestic ammonia distribution hub rather than a player directly exposed to sharp increases in manufacturing costs. Lotte Fine Chemical identifies ammonia as a core product and product group, and possesses the largest ammonia storage infrastructure in Korea. Additionally, the company recently executed the world's first commercial-scale import of green ammonia, utilizing its Ulsan terminal. Lee added, "This demonstrates once again that Lotte Fine Chemical is not simply a manufacturer but has established its position as a platform for supply, storage, and sales," noting, "During the current disruptions in the Strait of Hormuz, Lotte Fine Chemical's key competitive strengths lie not in its production facilities, but in its tanks, terminals, procurement lines, and sales network." He went on to say, "In the short term, this could lead to simultaneous increases in international prices, a rise in inventory asset values, and an expansion in proactive procurement demand from customers, thereby potentially strengthening the company’s earnings momentum."

It was also analyzed that the company continues to maintain solid liquidity. Lee noted, "While Lotte Fine Chemical’s cash and cash equivalents decreased from 298.5 billion won two years ago to 172 billion won last year, which may appear to weaken its cash position, it should also be noted that its short-term financial assets increased from 154.4 billion won to 243.4 billion won during the same period. This indicates that, rather than an outflow of cash, a portion of its cash-like assets has been reallocated to short-term investment assets."

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