KUALA LUMPUR (Aug 1): Following the strong financial performance recorded by Lotte Chemical Titan Holding Bhd (LCT), both CIMB Equity Research and TA Securities have maintained their "add" and "buy" recommendations for the company respectively.

CIMB has a target price (TP) of RM7.50 on LCT while TA Securities' TP for the company is RM6.59.

Both research houses attributed the stronger first half earnings of the company this year to higher plant utilisation of 82% as compared to 65% in the first half of 2017.

The two research houses also noted a net non-recurring income of RM79 million as well as a RM2 million associate income that came from RM39.5 million gain of interest swap from Lotte Chemical USA.

CIMB analyst Suwat Sinsadok is optimistic that the good performance should continue to improve in the second half of the financial year, driven by higher utilisation rates and improved margins for polyethylene and olefins and derivatives.

"While we remain cautious on LCT's utilisation rate, projecting overall utilisation rate to range 80% to 90% in FY18-20F, we remain positive on its operating margins, driven by high density polyethylene-naphtha, butadiene-naphtha and polypropylene-naphtha, due to tight supplies and strong demand, which should partly offset the higher naphtha feedstock costs," he said.

He believes the company remains attractive with expectation of strong earnings recovery to continue into the second half of the year and the financial year ending Dec 31, 2019 (FY19), driven by potential utilisation rate improvements in FY18-20F, higher margins for polyethylene and polypropylene, and the commercial start-up of its TE3 project in December 2017 and PP3 in FY18F as well as the high dividend yield of about 5.8% to 6.8% in FY18-20F.

According to Kylie Chan from TA Securities, the LCT management has guided a lower plant utilisation for FY18 to 85% from previous 90% on the back of sustained load downs in Indonesia.

"We lower our FY18 assumption on PU (plant utilisation) to 87% (previous: 89%) following management's refreshed guidance. Additionally, we also raise our feedstock price assumptions in FY18-20, in line with recent price trends. Lastly, we lower our tax forecasts in FY19-20 as we assume tax allowances for PP3 project, and in line with management's guidance," Chan said, adding that FY18's earnings forecasts are revised downwards by 7%.

Following that, she has lowered her TP to RM6.59 from previous target of RM7.47, based on unchanged 7.5 times of the group's forward enterprise value-earnings before interest, tax, depreciation and amortization (EV-EBITDA).

As of writing, LCT's share price was down by 0.57% to RM5.26 with about 1.15 million shares traded, giving it a market capitalisation of RM12 billion.