[Click eStock] "Lotte Chemical, Gradual Continued Earnings Improvement"

Published 29 May.2020 07:38(KST)

[Asia Economy Reporter Park Jihwan] IBK Investment & Securities evaluated Lotte Chemical on the 29th, stating that while earnings will rebound from the first quarter low, a downward revision of the annual earnings is inevitable. Accordingly, the target stock price was lowered by 25% from the previous 320,000 KRW to 240,000 KRW. However, due to expected moderate earnings growth from economic recovery and rising oil prices in the second half of the year, the investment rating was maintained as Buy.

Researcher Ham Hyungdo of IBK Investment & Securities forecasted, "Lotte Chemical's second-quarter sales will be 2.5141 trillion KRW, down 37.7% year-on-year, but operating profit will turn positive to 130.3 billion KRW." He explained that the burden from opportunity losses caused by the Daesan plant fire in the first quarter and high-priced raw material inputs will ease.

Considering the timing of raw material input in the second quarter, raw material prices are expected to be 251 USD, a decrease of 287 USD compared to the previous quarter. On the other hand, petrochemical product prices are expected to remain firm, improving the spread of key products such as PE, PP, and MEG.

Researcher Ham Hyungdo stated, "Due to the sharp drop in international oil prices, the number of rigs has decreased, leading to a rise in ethane prices," and added, "This will weaken the competitiveness of US ECC facilities compared to NCC and reduce PE exports to the Asia region."

The earnings improvement trend is also expected to continue moderately. Researcher Ham said, "Annual earnings will be determined by the recovery of oil prices and whether petrochemical product prices rise," and "Despite uncertain market conditions, the burden from global facility expansions will persist, resulting in weak annual earnings this year as well."

However, purchasing power improvement due to sustained low oil prices is expected. Researcher Ham said, "Crude oil supply remains firm, so rather than a sharp recovery in oil prices, a gradual upward trend is expected," and "he forecasted earnings improvement accompanying a gradual recovery in oil prices from a long-term perspective."