• Maintain TRADING BUY (TP: RM1.39). Lotte Chemical Titan (LC Titan) 9M24 core LATAMI of RM641mn exceeded our estimate at 125% though it is not fully unexpected. On QoQ basis, core loss widened to RM245mn (2Q24: RM203mn) dragged mainly by higher losses from associate company (i.e. LC USA) which underwent plant shutdown. Earnings outlook remain challenging amidst ample supply in the market though we think the market has fully priced in this. Hence, we maintain a TRADING BUY call on LC Titan with an unchanged DCF-derived TP of RM1.39. This implies 0.3x FY24F P/B. Key catalyst to the stock price include: (i) changes in business direction as a result of strategic review that is undertaken by the parent company, and (ii) disruption to supply due to logistical constraint and/or hurricane in the US.

• Key highlights. Utilisation rate (UR) recovered to 58% (2Q24: 47%) following the completion of statutory turnaround activities in previous quarter. Consequently, sales volume rose 15% QoQ to 404k MT (2Q24: 351k MT). Despite making additional drawdown of borrowing for the construction of Lotte Indonesia New Ethylene (LINE) project and to meet the working capital requirement, total debt declined slightly to RM7.8bn (2Q24: RM8.2bn) due to impact of stronger ringgit. Notwithstanding, its debt to total asset ratio rose to 35% (2Q24: 33%) which exceeded the Shariah parameter as defined by the SAC SC.

• Earnings Revision. No changes is made to our FY24-26F earnings forecast.

• Outlook. Management has lowered its annual UR guidance at 55-60% (from 65-70%). No changes to near-term outlook that remain challenging amidst overcapacity and intense competition. For LC USA, it has managed to raise USD477mn through issuance of new shares to repay loan and its working capital amidst challenging market condition.

Source: BIMB Securities Research - 7 Nov 2024