• Overview. LC Titan returned to black in 2Q20 with a core PATAMI of RM48.5m in 2Q20 as it ramping up production following completion of major statutory turnaround in 1Q20 as well as benefitting from low oil price. Our core PATAMI excludes unrealised FX loss of RM62.5m and inventory write-back gain worth RM102.7m.
   
• Key highlights. Revenue rose 7.8% qoq to RM1,576m on the back of higher sales volume by 29.3% to 517k MT amidst replenishment activities from importing countries. This offset the 16.6% decline in ASP to RM3,048/mt (1Q20: RM3,654/MT). 2Q20 plant utilization (PU) also rebounded to 86% (1Q20: 66%) as the company returned from plant turnaround which ended in mid of Apr 20.
   
• Against estimates: Below. 2Q20 core profit of RM48m helped to reduce 1HFY20 core losses to RM88mm. Nonetheless, it was below our profit estimate of RM193m mainly due weaker-than-expected income from associate company, LC USA. As such, we cut our FY20- 22F earnings by 41%/110%/81% as we pare down associate income amidst depressed margin in MEG market (Table 4).
   
• Outlook. Despite rebound in product spread due to low oil price (see Chart 1), we think overcapacity in the polymer market still persist particularly as China looks to become self-sufficient and reducing imports. This could continue to weigh on product prices and limit further expansion in product spread.
   
• Our call. The stock price has appreciated by 30% since our BUY call made in our report published in Apr. We downgrade the stock to HOLD as we think there is limited upside from current level. We also lower our TP to RM2.00 following our earnings downgrade. Our valuation is based on the GGM methodology.

Source: BIMB Securities Research - 3 Aug 2020