• Overview. LC Titan 3Q21 core PATAMI plunged by 84% qoq to RM64m mainly due to lower polymer product spread amidst rising oil price. Revenue declined by 12% qoq to RM2.2bn as sales volume declined by 10% qoq to 443k MT (2Q21: 494k MT) amidst planned maintenance shutdown for Cracker 1 and PE1 plants. Meanwhile, ASP inched down by 2% to USD1200/mt. EBITDA margin declined to 11.4% (2Q21: 23.6%), affected by rising raw material costs.

• Key highlights. 3Q21 plant utilization (PU) eased to 76% (2Q21: 86%) which brings YTD PU to 83% (9M20: 81%).

• Against estimates: Above. 9M21 core profit of RM887m made up our/consensus forecast at 103%/84% respectively. This is above our estimate following strong performance of its US associate company which benefited from high MEG price. We adjust higher our FY21F/FY22F earnings forecast by 25%/7% (Table 3) to account for this and slightly tweak product spread assumption.

• Expansion project update. Management finally announced the commencement of its LINE expansion project in Indonesia which will take place in early 2022 and to be completed by 2025.

• Dividend. The company announced a special DPS of 18 sen which implies a payout ratio of 50%.

• Outlook. While product spread has risen again in early 4QFY21, we hold our view that such level may not sustainable in view of potential (i) weaker demand from China amidst its effort to deleverage its economy and contain asset bubble and (ii) easing in logistic issue.

• Our call. Maintain HOLD on Lotte Titan with unchanged SOP-derived TP of RM2.60 which implies 10x FY22F P/E. Our valuation excludes potential earnings from LINE project beginning FY25F onwards.

Source: BIMB Securities Research - 29 Oct 2021