Trading Idea: LCTITAN

Yesterday, LCTITAN closed at RM6.40 representing a 1.5% discount of its IPO price of RM6.50. Despite its lackluster IPO performance we think LCTITAN could see some near term improvement, based on the following points:

1. LCTITAN’s market cap of RM15.7b ranks it at the 26th largest stock on Bursa & could be a strong contender to be included into the FBM KLCI index come next review (November 17)
It also edges out the current members of the FBM KLCI Reserve List (June 17).
Should LCTITAN be included in the upcoming review, it would probably be a "must-own stock" for institutional investors for index weighting purposes.



2. LCTITAN could also see additional cost savings in FY17 as compared to PCHEM with the weakening oil price. Its naphtha based feedstock is more sensitive to oil price movements, compared to ethane which is used by PCHEM.

Crude Oil Futures    

Comparison between ethane based cracker and naphtha-based cracker

3. Currently, LCTITAN’s trailing 12m P/E of 11.22x is trading at a discount, compared to PCHEM’s 14.14x. Given its likelihood of higher net profit margins in FY17 and inclusion into the FBM KLCI, the valuation gap could narrow in the coming months.

ps. Watch for the new LCTITAN warrant listing on Wednesday (19/7/17)                                                                                                                                            

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