Review

• Lotte Chemical Titan Holding Bhd (LCTITAN) registered an eighth consecutive core loss in 1QFY24. 1QFY24 results came in below our expectations but within consensus’ forecasts. We previously forecasted a core profit of RM41.4mn for FY24. The earnings miss was due to lowerthan-expected plant utilisation and poorer-than-expected product spreads.

• QoQ: 1QFY24 revenue increased 3.3% QoQ due to improvement in ASP as the sales volume remained flat. After adjusting for the write-down of inventories, the group registered eight consecutive quarters of core loss. LBT improved from RM255.2mn to RM213.7mn, driven by a lower share of loss from associates (almost halved QoQ) and a RM24.7mn reversal in a write-down of inventories compared with RM39.9mn write-down in the preceding quarter. Excluding extraordinary items such as the write-down of inventories, the core loss widened to RM202.5mn from RM154.0mn due to lower tax credits and higher distribution expenses.

• YoY: 1QFY24 revenue slipped 2.7% YoY on the back of lower sales volume (-8.9% YoY). Nonetheless, LBT improved, underpinned by better product spreads and a lower share of loss from associates.

• Same as previous quarters, LCTITAN maintained a low utilisation rate of 65% in 1QFY24 in lieu of subdued demand (4QFY23: 66%, 1QFY23: 70%).

Impact

• We lower our FY24/FY25/FY26 average utilisation rate assumption from 73%/75%/80% to 66%/70%/75%, respectively, and trim our product ASP by 3%-5%. Following these, we slash our earnings forecasts to -RM653.0mn/- RM213.6mn/RM213.9mn from RM41.4mn/RM410.1mn/RM482.8mn.

Outlook

• With around 7 out of 12 plants in Malaysia scheduled for a statutory turnaround in April 2024, we expect utilisation rate and sales volume to drop QoQ in 2QFY24, negatively impacting earnings for the quarter.

• The near-term earnings outlook remains challenging due to the supply glut despite the prospect of improving the global economic environment on the back of anticipated interest rate cuts by global central banks and stimulus measures in China. We expect LCTITAN to face widening core losses in 2QFY24 from lower sales volume and weak product spreads.

• The Indonesia LINE project’s main construction is mostly completed and is on schedule for commissioning in mid-2025.

Valuation

• We roll forward our base year of valuation. Maintain Sell with a lower target price of RM1.03/share (previous: RM1.05/share) pegged to 0.22x CY25 P/B ratio.

Source: TA Research - 3 May 2024