• Overview. LC Titan net profit declined 11% qoq and 14% yoy to RM79m due to larger loss from associate company which was affected by Hurricane Laura in the US. However, excluding non-core items of unrealised FX loss of RM30m, core profit grew by 13% yoy and >100% to RM101m. Notably, EBITDA grew by 36% qoq and 25% yoy to RM301m as product spread widened due to low oil prices and rising polymer prices.

• Key highlights. Revenue rose 23% qoq to RM1.94bn on the back of higher ASP by 14% to RM3,500/mt (2Q20: RM3,050/mt) supported by 8% increase in sales volume to 560k MT. Its 3Q20 plant utilization (PU) grew to 90% (1H20: 76%) bringing 9M20 PU of 81%.

• Against estimates: Inline. 9M20 core profit of RM12.4m made up 11% and 13% of our and consensus’ forecast. We deem this as within our forecast in expectation of another strong quarter in 4Q20.

• Outlook. Despite a rebound in product spread due to low oil price (see Chart 1), we think overcapacity concern 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. Maintain our HOLD call on the stock with unchanged TP RM2.00. Our valuation is based on the GGM methodology.

Source: BIMB Securities Research - 30 Oct 2020