• Overview. LC Titan 2Q21 core PATAMI declined slightly by 6% qoq to RM398m on lower sales volume and narrower product spread. Sales volume declined by 4.6% qoq to 494k MT (1Q21: 518k MT) due to weaker local demand amidst MCO. Revenue, however, rose by 7.4% qoq mainly due to the rise in ASP by 12.6% to USD1286/mt. EBITDA margin declined by 3.1ppt to 23.6% (1Q21: 26.7%) affected by rising raw material costs due to higher naphtha price.

• Key highlights. 2Q21 plant utilization (PU) eased to 86% (1Q21: 88%). Management expects to achieve higher PU of 85-90% in FY21 (FY20: 82%) despite the planned maintenance shutdown for Cracker 1 and PE1 plants which is scheduled to begin in early Aug 2021.

• Against estimates: Inline. 1H21 core profit of RM822m made up our/consensus forecast at 95%/92% respectively. We deem this as within our estimate on expectation of normalise earnings in 2H21.

• Expansion project update. Management expects the LINE expansion project in Indonesia to commence construction in early 2022 with target completion date in 2025.

• Outlook. Polymer prices have stabilised at c.USD1200/mt from its peak of USD1400/mt. Product spread, however, is affected by rising oil price. We keep our earnings forecast unchanged at this juncture as this remains within our base assumption.

• Our call. Stock price has gained by as much as 41% to its high of RM3.54 since our TRADING BUY call made in our report published in the middle of April. As earnings are expected to normalize in coming quarters, we downgrade the stock to HOLD with lower SOP-derived TP of RM2.60 (from RM3.70) which implies 10x FY22F P/E. Our valuation excludes potential earnings from LINE expansion project.

Source: BIMB Securities Research - 29 Jul 2021