KUALA LUMPUR (April 30): Lotte Chemical Titan Holding Bhd (LCT) is expected to benefit from lower naphtha feedstock cost following the collapse in crude oil prices, according to TA Securities Holdings Bhd.
TA analyst Kylie Chan Sze Zan wrote in a note today LCT’s plant utilisation rates are also expected to recover following the completion of statutory plant turnarounds this month.
"However, this may not translate into a profit turnaround given potential weakness in ASPs (average selling prices) and sales volumes. The latter is underpinned by demand destruction caused by Covid-19 lockdowns and an economic recession. We slashed ASPs by 10% across the board and reduced sales volume assumptions by 15% for FY20 (financial year ending Dec 31, 2020). As a result, our earnings forecasts are slashed by 118%/28%28% [for FY20, FY21 and FY22 respectively],” Chan said.
Chan said TA arrived at a new target price for LCT shares of RM1.64 versus RM1.20 previously.
TA’s note today followed LCT’s financial results announcement yesterday for the first quarter ended March 31, 2020 (1QFY20).
In a filing with Bursa Malaysia yesterday, LCT posted a net loss of RM170.06 million for 1QFY20, compared to a net profit of RM55.83 million a year earlier.
LCT said 1QFY20 revenue fell to RM1.46 billion from RM2.17 billion.
Chan said today LCT’s 1QFY20 core net loss of RM218 million underperformed expectations.
"The results were below our previous full-year profit forecast of RM259 million (consensus: RM184 million). The variance was due to lower-than-expected sales volumes and product ASPs. This was exacerbated by large write-downs of inventories to net realisable value,” the analyst said.
On Bursa today, LCT’s share price had risen 18 sen or 11.69% to RM1.72 at 11.15am, valuing the company at RM3.9 billion.
Its latest reported net asset per share stood at RM5.41.
Crude oil prices have fallen to below US$20 (RM86.44) a barrel on oversupply concerns and as the commodity contends with demand destruction due to the Covid-19 pandemic.
Today, it was reported that West Texas Intermediate (WTI) crude futures were traded at US$16.14 at 0147 GMT, while Brent was transacted at US$23.42.