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Growth – 6

We rate growth at 6 due to its operations in Indonesia that would likely see major gains due to the increase in demand for olefins. From the IPO prospectus, it is expected that Indonesia would see double digit CAGR for all major olefins.

Nevertheless, Malaysian operations should remain normal but with the unknown exception of the effects from a full scale RAPID Pengerang Project.

Industry – 5

We could just rate industry a mere average since prices of feed had declined with crude but the industry still do not see a huge gain in terms of profit. A simpler way to understand is that olefins are not specifically ‘branded’ which makes it a commodity in the end rather than a good.

Financials – 8

Top notch financials with little to no debt and currently increasing in margin versus the other major names in this field.

Moat – 4

As stated in industry, the products offering do not have a specific brand to it. The company’s business does not differ from any of its competitors in the region.

Proceeds – 10

We rated a perfect 10 for proceeds as you can see that the funds raised would be fully utilize in business expansion which in the end turns into a new stream of revenue from the Indonesian side and de-bottle necking plans in place to increase the efficiency of the plants in Malaysia. One of the best IPO proceeds we are rated which reflects what raising funds should mean rather than settling debt obligation.

Valuation – 7

We rate valuations slightly better than average since at RM8.00 per share it should trade cheaper than its listed peers like Petronas Chemicals and PT Chanda Asri. At the moment Petronas Chemicals trades at 16.02 and PT Chanda Asri at 16.59 versus the expected PE of Lotte Chemical Titan at 15.

Conclusion

We recommend you to subscribe to this IPO due to good business structure, plan and good utilization of IPO proceeds. Growth should likely be healthy for Indonesia and the big chunk of money (around RM4 billion) would be utilized in the development of petrochemical plants over there.

Furthermore, we do not see any downside in first day of trade due to high institution allocation. Over 92% of the allocated shares are meant for institution which we would likely see a lock in period of 1 year.

Click to download the IPO extract done for your ease!