8 things I learned from the 2017 Lotte Titan Chemical (LCTITAN) AGM  

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Lotte Titan Chemical (LCTITAN) is the largest producers of polyolefin in Southeast Asia with a market capitalization exceeding RM13 billion. In Jul 2017, LCTITAN returned to Bursa Securities with IPO price RM6.50. At present, LCTITAN’s production site in Malaysia consists of 11 plants, 2 co-generation plants and 3 tank farms. They are located on 2 sites in Pasir Gudang and Tanjung Langsat in the state of Johor. 

1. LCTITAN (LCT) registered a 4Q17 net profit (NP) of RM377 million, up 64% QoQ and 29% YoY, due to higher utilisation QoQ and higher HDPE-naphtha margin YoY.

QoQ sales revenue up +5.0% (from RM2.016 billion to RM2.117 billion), Profit Before Tax (PBT) up +55.9% (from RM245 million to RM382 million) and EBITDA up +33.3% (from RM 351 million to RM468 million). No debts with strong healthy +RM3.62 billion cash balance on-hand. Sales revenue increased 5% mainly due to increase in average selling price and sales volume. PBT increased by RM137 million due to improved plants utilization rate & operating efficiency +RM 110 Mil and non-operational +RM27 million (3Q17 fixed asset written off to NC1 turnaround, LCUSA associate gain on interest rate swap)

FY17 YoY sales revenue down -3.8% (from RM8.13 billion to RM7.82 billion), Profit Before Tax (PBT) down -33.3% (from RM1.71 billion to RM1.14 billion) and EBITDA down -26.1% (from RM2.12 billion to RM1.57 billion). Group revenue & PBT decreased primarily due to decrease in sales volume was attributed to the two statutory routine turnaround activities at Malaysia complex and lower Indonesia polyethylene plant load due to poor polyethylene economics, caused by tight ethylene supply and high cost resulting in lower production volume. However, partially offsetting the decrease in sales volume by 17.2% increase in average product selling price.

In whole FY17, LCT’s plant utilization has a big loss hit from average utilization 91% (in 2016) drop to 73% (in 2017), majority cause to unexpected events arise, plant shutdown due to (i) water supply disruption 13-days in 2Q17, (ii) small fire incident TE3 in 3Q17 and (iii) DOE environment stop-work order on odour emission in Oct’17) beside planned. Plant utilization also loss due to (iv) 53-days maintenance shutdown of naphtha cracker #2 in 1Q17 and (v) 33-days maintenance shutdown of cracker #1 in 2Q17 as well. As a result, it have a big hit loss in FY17 revenue & PAT as overall for 2017.

In AGM 2017, LCT’s top executive mgmt stated, there will be no major planned maintenance activities for FY 2018 except for routine maintenance, and they don’t expect any negative impact to the plant utilization rates. LCT already fully comply to all plant maintenance & safety regulations in 2017, there will be no more major plant maintenance in next 5 to 6 years. Mgmt also stressed with high confidence that with completion of the maintenance procedures for the plant, FY18 utilization rate of all plants this year could raised to >90% and drive capacity growth further with TE3 plant (commence Dec’17) & coming PP3 plant (commence June’18).

Based on FY18 new TE3 & PP3 plants additional output capacity coupled with new lean-cost efficient manufacturing technology, this will drive additional 30% output on top of current FY17 output when it run at full capacity for whole year 2018.  

2. Earnings per share (EPS) QoQ grew 59% from 10.42 cents to 16.64 cents. LCT’s earning is returning to its original normalize recovery, expected to hit EPS 20 cents by 1Q18 and subsequent quarters profit since there are no more plant maintenance occurrence for 2018 and assume those One-time unexpected events is clear off.

Moreover, this EPS of 20 cents profit does not include the additional 30% new capacity growth of TE3 & PP3 yet. If this to include additional potential growth of 30%, expected EPS will be 26cents per Quarter. Assume market give LCT’s PE value of 12 (global petrochemical shortage of supply & high China demand – sound realistic), compare to PCHEM (PE = 17), LCT share price might worth of RM12.48 by 2018.

That’s a huge potential gain of 100% increase based on current share price RM6.20 range in reflect to current global petrochemical supply shortage and uprising demand in China as an overall macroeconomic big picture for next 6 to 9mths overview.

Please stay tune! The next 6 items will share when  I have time to write it more.