• Overview. LC Titan turned in a core net loss of RM137m in 1Q20 as it was hit by squeeze in product spread and plant maintenance. Revenue plunged 26% qoq and 33% yoy to RM1.5bn due to lower sales volume by 22% qoq to 400k MT (1Q19: 525k MT, 4Q19: 514k MT) while ASP declined by 5% qoq and 12% yoy to RM3,650/mt. The company also undertook inventory write-down worth RM81.4m due to sharp drop in product prices but it was offset by unrealized forex gain of RM48.2m from translation of USD denominated IPO proceeds of RM2.5bn and tax credit of RM36m.

• Key highlights. 1Q20 plant utilization (PU) was significantly lower at 66% (1Q19: 87%, 4Q19: 86%) as the company shut down all its Malaysian plants except cracker 1, PE1 and PP3 from end Feb until early Apr 20 for the scheduled major plant turnaround.

• Against estimates: Inline. Weak 1Q20 result was within our expectation.

• Outlook. LC Titan set to benefit from lower raw material costs in coming quarters as naphtha prices dropped in tandem with oil prices. Nonetheless, we expect the better product spread to be reflected on lagging basis (i.e. in 2H20). At this juncture, we maintain our earnings forecast.

• Our call. Maintain our BUY call on the stock with an unchanged TP of RM2.20 based on the GGM methodology. This implies FY20F PE of 26x and ex-cash PE of 6x (Table 3). We are positive on the company’s long term prospect due to its strong balance sheet with net cash of RM4bn or RM1.73/share.

Source: BIMB Securities Research - 30 Apr 2020