• Overview. 4Q19 PATAMI jumped to RM188m mainly on higher associate income driven by one-off gain from partial disposal of LCUSA’s equity interest amounted to RM140m. Excluding this, core earnings growth was rather minimal at 7% yoy to RM96m. On qoq basis, the core earnings growth was also aided by tax credit gain amounted to RM48m (3Q19 tax expenses: RM42.3m).
• Key highlights. On qoq basis, 4Q19 plant utilization (PU) was lower at 86% (3Q19: 91%) as the company cut production at Indonesia plants due to unfavorable spread. 4Q19 EBITDA margin also still depressed at 8.5% (4Q18: 8.2%, 3Q19: 11.2%) due to lower ASP and higher feedstock costs.
• Against estimates: below. FY19 core net profit declined by 67% to RM261m. This is below both ours and consensus forecast at 74% and 86% respectively. The main deviation against our forecast was due to lower-than-expected core associate income.
• Dividend. Dividend for FY19 will be declared at later date.
• Outlook. We expect LC Titan’s core earnings will continue to decline against the backdrop of oversupply concern and weak demand from China. We also expect PU to drop to 82% in FY20 as the company will undertake scheduled maintenance activities at Malaysian plants (excluding PP3 and cracker 1) from end Feb until early April.
• Our call. Maintain SELL with an unchanged TP of RM2.00 based on the GGM methodology. This implies FY20F PE of 24x and ex-cash PE of 6x (Table 3). We are cautious on the narrowing polymer spread (the segment accounts for c.80% of revenue), particularly in view of the new supply from RAPID.

Source: BIMB Securities Research - 31 Jan 2020